What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-27 compared with 2023-03-14 · 606 added, 571 removed, 881 unchanged (57% of the section changed)

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We have audited the accompanying consolidated balance sheets of MKS Instruments, Inc.

and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive income, of stockholders’

equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2022 listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive (loss) income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2023 appearing after Item 16 (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date related to ineffective design and maintenance of information technology (“IT”) controls to prevent or detect, on a timely basis, unauthorized access to the Company’s financial reporting systems.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness referred to above is described in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.

We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the December 31, 2022 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in management’s report referred to above.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

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We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Atotech Limited (“Atotech”) from its assessment of internal control over financial reporting as of December 31, 2022 because it was acquired by the Company in a purchase business combination during 2022.

We have also excluded Atotech from our audit of internal control over financial reporting.

Atotech is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s

assessment and our audit of internal control over financial reporting represent approximately 13% and 15%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Acquisition of Atotech Limited (“Atotech”) - Valuation of Customer Relationships and Completed Technology Intangible Assets

As described in Notes 2 and 4 to the consolidated financial statements, during 2022 the Company completed its acquisition of Atotech for a total net purchase price of $5,664 million, which resulted in recording $1,756 million of customer relationships intangible assets and $595 million of completed technology intangible assets.

The fair value of the customer relationships and completed technology intangible assets were determined using the income approach.

In performing the valuation for the intangible assets, the key underlying assumptions used by management included the appropriate discount rate as well as forecasted revenue, gross profit and operating expenses.

The principal considerations for our determination that performing procedures relating to the valuation of the customer relationships and completed technology intangible assets acquired in the acquisition of Atotech is a critical audit matter are (i) the significant judgment by management when developing the fair value estimates of the customer relationships and completed technology intangible assets acquired;

(ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to the forecasted revenue, gross profit, operating expenses, and the discount rate for the customer relationships and the forecasted revenue and the discount rate for the completed technology;

Interim and Annual Goodwill Impairment Assessments – Equipment Solutions (ESB), Electronics (EL) and General Metal Finishing (GMF) Reporting Units

As described in Notes 3 and 13 to the consolidated financial statements, the Company’s net goodwill balance was $2,554 million as of December 31, 2023, and the goodwill associated with the ESB, EL and GMF reporting units was $87 million, $1,401 million and $318 million, respectively.

Management assesses goodwill for impairment on an annual basis as of October 31 or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired.

During the quarter ended June 30, 2023, management concluded there was a triggering event at each of its ESB, EL and GMF reporting units.

The interim goodwill impairment test as of June 30, 2023 resulted in impairment charges of $372 million, $826 million and $428 million at the ESB, EL and GMF reporting units, respectively.

The annual goodwill impairment test resulted in impairment charges of $13 million and $48 million at the ESB and EL reporting units, respectively.

In the quantitative assessment, management compares the fair value of the reporting unit to its carrying amount, which includes goodwill.

If the fair value exceeds the carrying value, no impairment loss exists.

If the fair value is less than the carrying amount, a goodwill impairment loss is measured and recorded.

For each of the three reporting units, management performed a quantitative assessment of goodwill using a weighting of an income approach and market approach.

The income approach was based upon projected future cash flows that were discounted to present value and an assumed terminal growth rate.

The key underlying assumptions included forecasted revenues, which incorporated external market data, terminal growth rate, gross profit and operating expenses, as well as an applicable discount rate for each reporting unit.

The market approach for each of the three reporting units incorporated observed multiples of guideline public companies.

The market approach for the EL and GMF reporting units also incorporated multiples from guideline transactions.

The principal considerations for our determination that performing procedures relating to the interim and annual goodwill impairment assessments of the ESB, EL and GMF reporting units is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the ESB, EL and GMF reporting units;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to forecasted revenues, gross profits, operating expenses, terminal growth rates, discount rates, and multiples of guideline public companies for ESB, EL and GMF, and multiples from guideline transactions for EL and GMF;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the customer relationships and completed technology intangible assets acquired.

These procedures also included, among others, (i) reading the purchase agreements and (ii) testing management’s process for developing the fair value estimate of the customer relationships and completed technology intangible assets.

Testing management’s process included evaluating the appropriateness of the valuation method, testing the completeness and accuracy of the underlying data used in the valuation method, and evaluating the reasonableness of the significant assumptions used by management related to the forecasted revenue, gross profit, operating expenses, and the discount rate for the customer relationships and the forecasted revenue and the discount rate for the completed technology.

Evaluating the reasonableness of the forecasted revenue, gross profit and operating expenses for the customer relationships intangible assets and the forecasted revenue for the completed technology intangible assets involved considering the past performance of the acquired business as well as industry forecasts.

Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the Company’s valuation method and the reasonableness of the discount rate assumptions.

These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessments, including controls over the valuation of the Company’s ESB, EL and GMF reporting units.

These procedures also included, among others, (i) testing management’s process for developing the fair value estimate of the ESB, EL and GMF reporting units;

(ii) evaluating the appropriateness of the income and market approaches used by management;

(iii) testing the completeness and accuracy of underlying data used in the income and market approaches;

and (iv) evaluating the reasonableness of the significant assumptions used by management related to forecasted revenues, gross profits, operating expenses, terminal growth rates, discount rates, and multiples as applicable to the valuation approach and reporting units described above.

Evaluating management’s assumptions related to forecasted revenues, gross profits, operating expenses, and terminal growth rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the ESB, EL and GMF reporting units, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the income and market approaches and (ii) the reasonableness of the discount rates and multiples assumptions.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

March 14, 2023

We have served as the Company’s auditor since 1981.

February 27, 2024

We have served as the Company’s auditor since 1981.

MKS Instruments, Inc.

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Intangible assets, net

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

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Accounts payable

Accrued compensation

Income taxes payable

Lease liabilities

Deferred revenue and customer advances

Other current liabilities

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Commitments and contingencies (Note 24)

Stockholders’

Stockholders’ equity:

Preferred stock, $ 0.01 par value, 2 shares authorized;

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Retained earnings

Accumulated other comprehensive income (loss)

Total stockholders’

Accumulated other comprehensive (loss) income

Total stockholders’ equity

Total liabilities and stockholders' equity

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MKS Instruments, Inc.

Consolidated Statements of Opera tions and Comprehensive Income

Consolidated Statements of Opera tions and Comprehensive (Loss) Income

(in millions, except per share data)

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Acquisition and integration costs

Restructuring and other

Restructuring

Fees and expenses related to repricing of Term Loan Facility

Amortization of intangible assets

Goodwill and intangible asset impairments

Gain on sale of long-lived assets

Income from operations

(Loss) income from operations

Interest income

Interest expense

Loss on extinguishment of debt

Other expense, net

Income before income taxes

Provision for income taxes

Other comprehensive income, net of tax:

(Loss) income before income taxes

(Benefit) provision for income taxes

Net (loss) income

Other comprehensive (loss) income, net of tax:

Changes in value of financial instruments designated as cash flow

Foreign currency translation adjustments

Unrecognized pension gain (loss)

Total comprehensive income

Net income per share:

Change in net investment hedge

Unrecognized pension (loss) gain

Unrealized loss on investments

Total comprehensive (loss) income

Net (loss) income per share:

Weighted average common shares outstanding:

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MKS Instruments, Inc.

Consolidated Statements of Stockholders’

Consolidated Statements of Stockholders’ Equity

(in millions, except per share data)

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Stockholders'

Income (Loss)

(Loss) Income

Balance at December 31, 2020

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Comprehensive income (net of tax):

Other comprehensive income

Other comprehensive loss

Balance at December 31, 2021

Net issuance under stock-based plans

Shares issued for Atotech Acquisition

Stock-based compensation

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Comprehensive income (net of tax):

Other comprehensive loss

Other comprehensive income

Balance at December 31, 2022

Net issuance under stock-based plans

Shares issued for Atotech Acquisition

Stock-based compensation

Cash dividend ($ 0.88 per common share)

Comprehensive income (net of tax):

Other comprehensive income

Comprehensive loss (net of tax):

Other comprehensive loss

Balance at December 31, 2023

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Cash flows from operating activities:

Adjustments to reconcile net income to net cash provided by

operating activities:

Net (loss) income

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization

Amortization of inventory step-up to fair value

Goodwill and intangible asset impairments

Unrealized loss (gain) on derivatives not designated as hedging instruments

Amortization of inventory step-up adjustment to fair value

Amortization of debt issuance costs and original issue discount

Loss on extinguishment of debt

Gain on sale of long-lived assets

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Deferred income taxes

Changes in operating assets and liabilities, net of businesses acquired:

Changes in operating assets and liabilities, net of acquired assets and liabilities:

Trade accounts receivable

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Cash flows from financing activities:

Proceeds from borrowings, net of deferred financing fees paid

Payments of short and long-term borrowings

Payments of finance leases

Proceeds from borrowing

Payments of borrowings

Payments of deferred financing fees

Dividend payments

Net payments related to employee stock awards

Net cash provided by (used in) financing activities

Other financing activities

Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

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MKS Instruments, Inc.

(“MKS”

or the “Company”) was founded in 1961 and enables technologies that transform our world.

(“MKS” or the “Company”) was founded in 1961 and enables technologies that transform the world.

The Company delivers foundational technology solutions to leading edge semiconductor manufacturing, electronics and packaging, and specialty industrial applications.

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(2) Basis of Presentation

The Consolidated Financial Statements include the accounts of MKS Instruments, Inc.

and its wholly owned subsidiaries.

The Consolidated Financial Statements include the accounts of MKS and its wholly owned subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation.

Certain prior period amounts have been reclassified to conform to current period presentation.

As a result of rounding, there may be immaterial differences in amounts presented and certain calculations may not sum to the total number expressed in each category or tie to a corresponding schedule.

The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”).

The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition and allowance for doubtful accounts, inventory valuation, warranty costs, pension plan valuations, stock-based compensation, intangible assets, goodwill, other long-lived assets, in process research and development and income taxes.

On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition and allowance for doubtful accounts, inventory valuation, warranty costs, pension plan valuations, stock-based compensation, intangible assets, goodwill, other long-lived assets, in-process research and development (“IPR&D”) and income taxes.

Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

In the first quarter of 2022, MKS updated the names of its then-three divisions in order to simplify its naming convention.

These divisions, formerly known as the Vacuum & Analysis Division, the Light & Motion Division and the Equipment & Solutions Division, were renamed the Vacuum Solutions Division (“VSD”), the Photonics Solutions Division (“PSD”) and the Equipment Solutions Division (“ESD”), respectively.

On August 17, 2022, the Company completed its acquisition of Atotech Limited (“Atotech”

and such transaction, the “Atotech Acquisition”) and refers to the Atotech business as its Materials Solutions Division (“MSD”).

During the third quarter of 2022, MKS consolidated its equipment solutions business (“ESB”), previously ESD, into a component of PSD, with prior periods recast to reflect this change.

MKS' reportable segments as of December 31, 2022 consist of its current three divisions, VSD, PSD and MSD.

For additional information about the Atotech Acquisition, see Note 4 to the Consolidated Financial Statements.

The Company has three reportable segments:

the Vacuum Solutions Division (“VSD”), the Photonics Solutions Division (“PSD”) and the Materials Solutions Division (“MSD”) as described in Note 22.

(3) Summary of Significant Accounting Policies

Revenue from Contracts with Customers

The Company accounts for revenue using Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers”

(“ASC Topic 606”).

The Company accounts for revenue using Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers” (“ASC Topic 606”).

The Company applies ASC Topic 606 using the following steps:

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• Recognize revenue when or as the Company satisfies a performance obligation

Revenue is recognized when or as obligations under the terms of a contract with a customer have been satisfied and control has transferred to the customer.

The majority of the Company’s performance obligations, and associated revenue, are transferred to customers at a point in time, generally upon shipment of a product to the customer or receipt of the product by the customer and without significant judgments.

The Company recognizes revenue over time for contracts relating to the manufacturing, modifications and retrofits of its plating equipment, as the equipment is

MKS INSTRUMENTS, INC.

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(in millions, except per share data)

Revenue is recognized when or as obligations under the terms of a contract with a customer has been satisfied and control has transferred to the customer.

The majority of the Company's performance obligations, and associated revenue, are transferred to customers at a point in time, generally upon shipment of a product to the customer or receipt of the product by the customer and without significant judgments.

The Company recognizes revenue over time for contracts relating to the manufacturing, modifications and retrofits of its plating equipment, as the equipment is built to customer specification, and the Company has an enforceable right to payment for the performance completed to date.

built to customer specification, and the Company has an enforceable right to payment for the performance completed to date.

For these sales, the Company uses the cost-to-cost input method to measure progress.

In cases, where cost-to-cost is not proportionate to its progress in satisfying the performance obligation because of uninstalled materials, the Company adjusts the measure of progress and recognizes revenue to the extent of cost incurred to satisfy the performance obligation under the contract.

Revenue from customized products with no alternative future use to the Company, and that have an enforceable right to payment for performance completed to date, are also recorded over time.

Revenue from customized products with no alternative future use to the Company, and that have an enforceable right to payment for performance completed to date, is also recorded over time.

The Company considers this to be a faithful depiction of the transfer to the customer of revenue over time as the work is performed or service is delivered.

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Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the product or service is separately identifiable from other promises in the contract.

Sales, value add, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue.

The Company’s normal payment terms are 30 to 60 days, but vary by the type and location of its customers and the products or services offered.

For certain products and services and customer types, the Company requires payment before the products or services are delivered to, or performed for, the customer.

None of the Company’s contracts as of December 31, 2022 contained a significant financing component.

Sales tax, value add tax, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue.

The Company’s normal payment terms are 30 to 60 days, but vary by the type and location of its customers and the products or services offered.

The time between invoicing and when payment is due is not significant .

For certain products and services and customer types, the Company requires payment before the products are delivered to, or the services are performed for, the customer.

None of the Company’s contracts in each of the periods presented contained a significant financing component.

Contracts with Multiple Performance Obligations

The Company periodically enters into contracts with its customers in which a customer may purchase a combination of goods and or services, such as products with installation services or extended warranties.

These contracts include multiple promises that the Company evaluates to determine if the promises are separate performance obligations.

These contracts include multiple deliverables that the Company evaluates to determine if the deliverables are separate performance obligations.

Once the Company determines the performance obligations, the Company then determines the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any.

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The corresponding revenues are recognized when or as the related performance obligations are satisfied, which are noted above.

The Company’s standard assurance warranty period is normally 12 to 24 months.

The Company sells separately priced service contracts and extended warranty contracts related to certain of its products.

The impact of variable consideration was immaterial in each of the periods presented.

The Company’s standard assurance warranty period is normally 12 to 24 months.

The Company sells separately priced service contracts and extended warranty contracts related to certain of its products, in particular related to our plating and laser-based products.

The separately priced contracts generally range from 12 to 60 months.

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Research and development costs are expensed as incurred and consist mainly of compensation-related expenses and project materials.

The Company’s research and development efforts include numerous projects, which generally have a duration of 3 to 36 months.

Acquired in-process research and development (“IPR&D”) expenses, if acquired in a business combination, are capitalized at fair value as an intangible asset until the related project is completed, and are then amortized over the estimated useful life of the product.

The Company’s research and development efforts include numerous projects, which generally have a duration of 3 to 36 months.

Acquired IPR&D expenses, if acquired in a business combination, are capitalized at fair value as an intangible asset until the related project is completed, and are then amortized over the estimated useful life of the product.

The Company monitors projects and, if they are abandoned, the Company writes them off.

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Advertising costs are expensed as incurred and were immaterial in 2023, 2022 and 2021.

The Company accounts for leases under ASC Topic 842, “Leases”

(“ASC Topic 842”).

The Company accounts for leases under ASC Topic 842, “Leases” (“ASC Topic 842”).

Under ASC Topic 842, a contract is or contains a lease when the Company has the right to control the use of the identified asset.

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The lease term used to calculate the lease liability includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised.

The Company has finance leases related to certain facilities it acquired as part of the Atotech Acquisition.

The Company measures the lease liability as the present value of future lease payments, discounted using the discount rate for the lease at the commencement date.

The Company is typically unable to determine the implicit interest rate, so it uses an incremental borrowing rate based on the lease term and economic environment at commencement date.

The right of use (“ROU”) asset is initially measured as the amount of the lease liability, adjusted for any initial lease costs, prepaid lease payments and reduced by any lease incentives.

The Company’s contracts often include non-lease components such as common area maintenance.

The right-of-use (“ROU”) asset is initially measured as the amount of the lease liability, adjusted for any initial lease costs, prepaid lease payments and reduced by any lease incentives.

The Company’s contracts often include non-lease components such as common area maintenance.

MKS has elected the practical expedient to account for the lease and non-lease components as a single lease component.

For leases with a term of one year or less the Company has elected not to record the lease asset or liability.

The lease payments are recognized in the consolidated statement of earnings on a straight-line basis over the lease term.

The lease payments are recognized in the consolidated statements of operations and comprehensive (loss) income on a straight-line basis over the lease term.

The Company includes lease costs within cost of revenues and operating expenses.

Stock-Based Compensation

The accounting for share-based compensation expense requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values.

For restricted stock units (“RSUs”), the fair value is measured on the date of grant and expensed normally over a t hree-

MKS INSTRUMENTS, INC.

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(in millions, except per share data)

Stock-Based Compensation

For restricted stock units (“RSUs”), the fair value is measured on the date of grant and expensed normally over a three-year period.

The Company also provides certain employees with the opportunity to purchase shares through its 2014 Employee Stock Purchase Plan (“2014 ESPP”).

y ear period.

The Company does not include a forfeiture rate in the fair value measurement at the date of grant.

The Company also provides certain employees with the opportunity to purchase shares through its 2014 Employee Stock Purchase Plan (“2014 ESPP”).

The Company estimates the fair value of shares issued under the 2014 ESPP using the Black-Scholes pricing model, which incorporates a number of complex and subjective variables, including expected stock price volatility over the term of the awards, expected life, risk-free interest rate and expected dividends.

Management determined that blended volatility, a combination of historical and implied volatility, is more reflective of market conditions and a better indicator of expected volatility than historical or implied volatility alone.

The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment.

As a result, if factors change and the Company uses different assumptions, stock-based compensation expense could be materially different in the future.

Accumulated Other Comprehensive Income

Accumulated Other Comprehensive (Loss) Income

For foreign subsidiaries where the functional currency is the local currency, assets and liabilities are translated into U.S.

dollars at the current exchange rate on the balance sheet date.

dollars at the current exchange rate on the consolidated balance sheets date.

Revenue and expenses are translated at average rates of exchange prevailing during the year.

Translation adjustments resulting from this process are recorded to Accumulated Other Comprehensive Income (“OCI”).

Unrealized gains and losses on securities classified as available-for-sale and unrecognized pension gains and losses are included in OCI in consolidated stockholders’

For derivative instruments designated as cash-flow hedges and interest rate swap hedges, the effective portion of the derivative’s gain (loss) is initially reported as a component of OCI and is subsequently recognized in earnings when the hedged exposure is recognized in earnings.

Net Income Per Share

Basic net income per share is based on the weighted average number of common shares outstanding and diluted net income per share is based on the weighted average number of common shares outstanding and all potential dilutive common equivalent shares outstanding.

Translation adjustments resulting from this process are recorded to accumulated Other Comprehensive (Loss) Income (“OCI”).

Unrealized gains and losses on securities classified as available-for-sale and unrecognized pension gains and losses are included in OCI in consolidated stockholders’ equity.

Net (Loss) Income Per Share

Basic net (loss) income per share is based on the weighted average number of common shares outstanding and diluted net (loss) income per share is based on the weighted average number of common shares outstanding and all potential dilutive common equivalent shares outstanding.

The dilutive effect of equity awards is determined under the treasury stock method using the average market price for the period.

Common equivalent shares are included in the per share calculations when the effect of their inclusion would be dilutive.

In periods in which a net loss is recognized, common equivalent shares are not included as they are antidilutive.

Cash and Cash Equivalents and Investments

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The appropriate classification of investments in securities is determined at the time of purchase.

Debt securities that the Company does not have the intent and ability to hold to maturity are classified as “available-for-sale”

and are carried at fair value.

Debt securities that the Company does not have the intent and ability to hold to maturity are classified as “available-for-sale” and are carried at fair value.

The Company classifies investments with maturity dates greater than twelve months in short-term investments rather than long-term investments.

This method classifies these securities as current based on the nature of the securities and the availability for use in current operations.

The Company believes this method is preferable because it is more reflective of the Company’s assessment of its overall liquidity position.

The Company reviews its investment portfolio on a quarterly basis to identify and evaluate individual investments that have indications of possible impairment.

The factors considered in determining whether a loss is other-than-temporary include:

the length of time and extent to which fair market value has been below the cost basis, the financial condition and near-term prospects of the issuer, credit quality, and the Company’s ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value.

Concentrations of Credit Risk

The Company’s significant concentrations of credit risk consist principally of cash and cash equivalents, foreign exchange forward contracts, interest rate swaps and trade accounts receivable.

The Company maintains cash and cash equivalents with financial institutions, including some banks with which it has borrowings.

The Company enters into

MKS INSTRUMENTS, INC.

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(in millions, except per share data)

Concentrations of Credit Risk

The Company’s significant concentrations of credit risk consist principally of cash and cash equivalents, foreign exchange forward contracts, interest rate swaps and trade accounts receivable.

The Company maintains cash and cash equivalents with financial institutions, including some banks with which it has borrowings.

The Company enters into foreign exchange forward contracts with high credit-quality financial institutions in order to minimize credit risk exposure.

The Company’s largest customers are primarily concentrated in the semiconductor industry, and a limited number of these customers account for a significant portion of the Company’s revenues.

foreign exchange forward contracts with high credit-quality financial institutions in order to minimize credit risk exposure.

The Company’s largest customers are primarily concentrated in the semiconductor industry, and a limited number of these customers account for a significant portion of the Company’s revenues.

The Company regularly monitors the creditworthiness of its customers and believes it has adequately provided for potential credit loss exposures.

Credit is extended for all customers based primarily on financial condition, and collateral is not required.

During 2022, 2021 and 2020 , approximately 58 %, 62 %, and 59 % of the Company’s net revenues, respectively, were from sales to customers in the semiconductor market.

No single customer represented greater than 10 % of the Company’s accounts receivable balance as of December 31, 2022 .

One customer represented approximately 18 % of the Company's accounts receivable balance as of December 31, 2021 .

During 2023, 2022 and 2021 , approximately 41 % , 58 % , and 62 % of the Company’s net revenues, respectively, were from sales to customers in the semiconductor market.

No single customer represented greater than 10 % of the Company’s accounts receivable balance as of December 31, 2023 or 2022 .

Inventories are stated at the lower of cost or net realizable value, cost being determined using a standard costing system that approximates actual cost, based on a first-in, first-out method.

10 unchanged sentences

Goodwill is measured as the excess of the consideration transferred over the net fair value of identifiable assets acquired and liabilities assumed.

The accounting for an acquisition involves a considerable amount of judgement and estimation.

The accounting for an acquisition involves a considerable amount of judgment and estimation.

Cost, income, market or a combination of approaches may be used to establish the fair value of consideration exchanged, assets acquired, and liabilities assumed, depending on the nature of those items.

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Upon conclusion of the measurement period, or final determination of the value of the assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments are recorded to results of operations.

Intangible Assets

Intangible assets resulting from the acquisitions of businesses are estimated by management based on the fair value of assets acquired.

These include acquired customer lists, completed technology, patents, trademarks, trade names, backlog and IPR&D.

Intangible assets, other than IPR&D, are amortized from one to eighteen years on a straight-line basis, which represents the estimated periods of benefit and the expected pattern of consumption.

IPR&D is not subject to amortization until reclassification into completed technology.

Upon completion of a project, the Company

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

Intangible Assets

Intangible assets resulting from the acquisitions of businesses are estimated by management based on the fair value of assets acquired.

These include acquired customer lists, technology, trademarks, trade names and IPR&D.

Intangible assets are amortized from one to eighteen years on a straight-line basis which represents the estimated periods of benefit and the expected pattern of consumption.

expects the corresponding IPR&D intangible assets to be amortized over an estimated useful life of eight to nine years .

Goodwill is the amount by which the cost of acquired net assets exceeded the fair value of those net assets on the date of acquisition.

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The Company assesses goodwill for impairment on an annual basis as of October 31 or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired.

The estimated fair value of the Company’s reporting units is based on discounted cash flow models derived from internal earnings and internal and external market forecasts.

Determining fair value requires the exercise of significant judgment, including judgments about appropriate discount and terminal growth rates, as well as forecasted revenue, gross profit and operating expenses.

Discount rates are based on a weighted average cost of capital (“WACC”), which represents the average rate a business must pay its providers of debt and equity.

The WACC used to test goodwill is derived from a group of comparable companies.

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The Company makes every effort to forecast these future cash flows as accurately as possible with the information available at the time the forecast is developed.

In performing the Company’s annual goodwill impairment test, the Company is permitted to first assess qualitative factors to determine whether it is more likely than not that the fair value of the Company’s reporting unit exceeds its carrying amount, including goodwill.

In performing the qualitative assessment, the Company considers certain events and circumstances specific to the reporting unit and to the entity as a whole, such as macroeconomic conditions, industry and market considerations, overall financial performance and cost factors when evaluating whether it is more likely than not that the fair value of the reporting unit exceeds its carrying amount.

The Company is also permitted to bypass the qualitative assessment and proceed directly to the quantitative test.

If the Company chooses to undertake the qualitative assessment and concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company would then proceed to the quantitative impairment test.

The Company is also permitted to bypass the qualitative assessment and proceed directly to the quantitative assessment.

In the quantitative assessment, the Company compares the fair value of the reporting unit to its carrying amount, which includes goodwill.

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If the fair value is less than the carrying amount, a goodwill impairment loss is measured and recorded.

As of October 31, 2022, the Company performed its annual impairment assessment of goodwill by performing a qualitative analysis for all of its reporting units and determined that it is more likely than not that the fair values of the reporting units exceed their carrying amounts.

Impairment of Long-Lived Assets

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Foreign Exchange

The functional currency of the majority of the Company’s foreign subsidiaries is the applicable local currency.

For those subsidiaries, assets and liabilities are translated to U.S.

dollars at year-end exchange rates.

Income and expense

Income and expense accounts are translated at the average exchange rates prevailing during the year.

The resulting translation adjustments are included in OCI in consolidated stockholders’ equity.

Foreign exchange transaction gains and losses are classified in other expense, net in the statement of operations and comprehensive (loss) income.

In 2022, published official exchange rates for Turkey indicated that the three-year cumulative inflation rate exceeded 100 % and therefore is considered to be a hyper inflationary economy.

Accordingly, the Company has changed the functional currency of its subsidiary in Turkey from the Turkish lira to the U.S.

dollar, which is the consolidated

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

accounts are translated at the average exchange rates prevailing during the year.

The resulting translation adjustments are included in accumulated other comprehensive income (loss) in consolidated stockholders’

Foreign exchange transaction gains and losses are classified in other income/expense in the statement of operations and comprehensive income.

group’s reporting currency.

The required remeasurement of assets and liabilities denominated in Turkish lira into U.S.

dollar did not have a material impact on the Company’s results of operations.

Net foreign exchange losses resulting from re-measurement were $ 30 , $ 5 , and $ 9 for the years ended December 31, 2023, 2022, and 2021 , respectively, and are included in other expense, net.

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Employee Benefit Plans

The majority of the Company’s employees participate in defined contribution plans, whereby the Company, at its discretion, makes certain matching contributions based on participating employees’

annual contribution to the plan and their total compensation.

The majority of the Company’s employees participate in defined contribution plans, whereby the Company, at its discretion, makes certain matching contributions based on participating employees’ annual contribution to the plan and their total compensation.

The Company also has defined benefit retirement plans at certain of its foreign subsidiaries.

The Company accounts for these plans based on the provisions of ASC Topic 715, “Compensation-Retirement Benefits.”

Some of the key assumptions used to calculate the pension expense and projected benefit obligation include the discount rate, rate of forecasted salary increases, the expected long-term rate of return on plan assets and expected mortality.

The Company accounts for these plans based on the provisions of ASC Topic 715, “Compensation-Retirement Benefits.” Some of the key assumptions used to calculate the pension expense and projected benefit obligation include the discount rate, rate of forecasted salary increases, the expected long-term rate of return on plan assets and expected mortality.

The obligation for these claims and the related periodic costs are measured using actuarial techniques and assumptions.

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The Company does not enter into derivative instruments for trading or speculative purposes.

The Company used derivative instruments, such as foreign exchange forward contracts and options, to manage certain foreign currency exposure, and interest rate swaps and interest rate caps to manage interest rate exposure.

Changes in fair value of derivative instruments are recognized in the consolidated statement of operations or, if hedge accounting is applied, in OCI for the effective portion of the changes in fair value.

The cash flows resulting from

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

fair value of derivative instruments are recognized in the consolidated statement of operations or, if hedge accounting is applied, in other comprehensive income for the effective portion of the changes in fair value.

The cash flows resulting from foreign exchange forward contracts are classified in the consolidated statements of cash flows as part of cash flows from operating activities.

All derivatives are stated at fair value in the balance sheet.

foreign exchange forward contracts are classified in the consolidated statements of cash flows as part of cash flows from operating activities.

All derivatives are stated at fair value in the consolidated balance sheets.

Accounting principles for qualifying hedges require detailed documentation that describes the relationship between the hedging instrument and the hedged item, including, but not limited to, the risk management objectives and hedging strategy and the methods to assess the effectiveness of the hedging relationship.

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While there can be no assurance, the Company does not anticipate any material non-performance by any of these counterparties.

(4) Recent Accounting Pronouncements

Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually.

Additionally, it requires a public entity to disclose the title and position of the Chief Operating Decision Maker (“CODM”).

The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments.

The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

A public entity should apply the amendments in this ASU retrospectively to all prior periods presented in the financial statements.

The Company is currently evaluating the impact of this ASU on its disclosures within the consolidated financial statements.

Income Taxes (Topic 740):

Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which focuses on the rate reconciliation and income taxes paid.

2023-09 requires a public business entity (“PBE”) to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold.

In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5 % of total income tax payments, net of refunds received.

For PBEs, the new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

An entity may apply the amendments in this ASU prospectively by providing the revised disclosures for the period ending December 31, 2025 and continuing to provide the pre-ASU disclosures for the prior periods, or may apply the amendments retrospectively by providing the revised disclosures for all period presented.

The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.

(5) Acquisitions

On August 17, 2022 (the “Effective Date”), the Company completed the Atotech Acquisition, through the acquisition of the entire issued share capital of Atotech by Atotech Manufacturing, Inc.

(“Bidco”), a Delaware corporation and indirect wholly owned subsidiary of the Company.

The Atotech Acquisition was implemented by means of a scheme of arrangement under the laws of Jersey (the “Scheme”) pursuant to the definitive agreement entered into by the Company and Atotech on July 1, 2021, as amended by the Letter Agreement dated October 29, 2021 by and among the Company, Atotech and Bidco, and as further amended by the Amendment to the Implementation Agreement dated April 1, 2022 by and among the Company, Atotech and Bidco (together, the “Implementation Agreement”).

Atotech, which the Company operates as MSD, develops leading process and manufacturing technologies for advanced surface modification, electroless and electrolytic plating, and surface finishing.

On August 17, 2022 (the “Effective Date”), the Company completed the acquisition of Atotech Limited (“Atotech” and such transaction, the “Atotech Acquisition”), through the acquisition of the entire issued share capital of Atotech by Atotech Manufacturing, Inc.

(“Bidco”), a Delaware corporation and indirect wholly owned subsidiary of the Company.

The Atotech Acquisition was implemented by means of a scheme of arrangement under the laws of Jersey

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

(the “Scheme”) pursuant to the definitive agreement entered into by the Company and Atotech on July 1, 2021 (as amended, the “Implementation Agreement”).

Atotech, which the Company operates as the Materials Solutions Division (“MSD”), develops leading process and manufacturing technologies for advanced surface modification, electroless and electrolytic plating, and surface finishing.

Applying a comprehensive systems-and-solutions approach, Atotech's portfolio includes chemistry, equipment, software, and services for innovative and high-technology applications in a wide variety of end markets.

1 unchanged sentence

On the Effective Date, pursuant to the Scheme and in accordance with the terms and conditions of the Implementation Agreement, Bidco acquired each issued and outstanding ordinary share of Atotech in exchange for per share consideration of $ 16.20 in cash and 0.0552 of a share of Company common stock.

The Company funded the payment of the aggregate cash consideration with a combination of cash on hand and the proceeds from the New Term Loan Facility, as defined in Note 14.

The Company funded the payment of the aggregate cash consideration with a combination of cash on hand and the proceeds from the Term Loan Facility, as defined in Note 15.

As a result of the Atotech Acquisition, the Company issued an aggregate of 10.7 shares of Company common stock to the former Atotech shareholders.

2 unchanged sentences

Value of MKS shares issued

Repayment of Atotech debt (1)

Settlement of Atotech share-based awards (2)

Repayment of Atotech senior secured term loans

Settlement of accelerated Atotech share-based awards

Total purchase price, net of cash and cash equivalents acquired

(1) Represents the cash paid for the outstanding principal of Atotech's senior secured term loans.

(2) Represents the amount paid to the holders of Atotech options that became fully vested on the Effective Date and the fair value of vested but unissued Atotech share-based awards.

Under the acquisition method of accounting, the total purchase price is allocated to the estimated acquired tangible and intangible assets and assumed liabilities of Atotech based on their fair values as of the Effective Date, except for contract assets and liabilities, which remain at book value in accordance with ASC Topic 606.

Any excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed is allocated to goodwill and

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

none of this goodwill or intangible assets will be deductible for tax purposes.

The Company believes the amount of goodwill relative to identifiable intangible assets relates to several factors, including (1) broadening its position in key industrial end markets to offer complementary solutions, and (2) leveraging component and systems expertise to provide robust solutions to meet its customers’

evolving technology needs.

The following table summarizes the allocation of the purchase price to the preliminary fair values assigned to assets acquired and liabilities assumed at the Effective Date:

Under the acquisition method of accounting, the total purchase price was allocated to the acquired tangible and intangible assets and assumed liabilities of Atotech based on their fair values as of the Effective Date, except for contract assets and liabilities, which remain at book value in accordance with ASC Topic 606, Revenue from Contracts with Customers.

Any excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed was allocated to goodwill and none of this goodwill or intangible assets will be deductible for tax purposes.

The Company believes the amount of goodwill relative to identifiable intangible assets relates to several factors, including (1) broadening its position in key electronics and industrial markets to offer complementary solutions, and (2) leveraging component and systems expertise to provide robust solutions to meet its customers’ evolving technology needs.

The following table summarizes the allocation of the purchase price to the fair values assigned to assets acquired and liabilities assumed at the Effective Date inclusive of immaterial measurement period adjustments:

Cash and cash equivalents

Trade accounts receivable

Accounts receivable

Other current assets

11 unchanged sentences

Total purchase price, net of cash and cash equivalents acquired

The allocation of purchase consideration to the estimated acquired tangible and intangible assets and assumed liabilities of Atotech is preliminary and subject to change during the measurement period.

While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value the assets acquired and liabilities assumed on the Effective Date, its estimates and assumptions are subject to refinement.

The fair value of the acquired intangible assets was determined using the income approach.

In performing these valuations, the key underlying assumptions used included the appropriate discount rates as well as forecasted revenue growth rates, gross profit and operating expenses.

Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions.

The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company's results of operations.

The finalization of the purchase accounting assessment may result in a change in the valuation of assets acquired and liabilities assumed and may have a material impact on the Company's results of operations and financial position.

As a result, during the measurement period, which may be up to one year from the Effective Date, the Company records adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill to reflect additional information received about facts and circumstances which existed at the Effective Date.

The Company records adjustments to the assets acquired and liabilities assumed subsequent to the purchase price allocation period in the Company's operating results in the period in which the adjustments are determined.

The preliminary valuations were based on the information that was available through the filing date of this Annual Report on Form 10-K that existed as of the Effective Date and the expectations and assumptions that have been deemed reasonable by the Company's management.

The size and breadth of the Atotech Acquisition may necessitate the use of this one-year measurement period to adequately analyze and assess a number of the factors used in establishing the fair value of certain tangible and intangible assets acquired and liabilities assumed as of the Effective Date and the related tax impacts of any changes made.

The Company is still evaluating the tax impact of the assets acquired and liabilities assumed.

Any potential adjustments made could be material in relation to the preliminary values presented above.

In performing these valuations, the key underlying assumptions used included the appropriate discount rates as well as forecasted revenue

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

The following table reflects the preliminary allocation of the acquired intangible assets and related estimate of useful lives at the Effective Date:

growth rates, gross profit and operating expenses.

Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions.

The valuations were based on the information that was available during the one-year measurement period that existed as of the Effective Date and the expectations and assumptions that have been deemed reasonable by the Company's management.

The size and breadth of the Atotech Acquisition necessitated the use of this measurement period to adequately analyze and assess a number of the factors used in establishing the fair value of certain tangible and intangible assets acquired and liabilities assumed as of the Effective Date and the related tax impacts of any changes made.

The measurement period is now complete.

The following table reflects the allocation of the acquired intangible assets and related estimate of useful lives at the Effective Date:

Customer relationships

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The acquired intangible assets are being amortized on a straight-line basis, which approximates the economic use of the assets over their estimated useful lives.

Upon completion of the related projects, we expect the in-process research and development intangible asset to be amortized over its estimated useful live of eight to nine years .

The results of this acquisition were included in the Company's consolidated statement of operations beginning on August 17, 2022.

The Atotech business constitutes the Company's MSD reportable segment (see Note 20).

The net loss of MSD since the Effective Date was not material.

During the year ended 2022, the Company recognized acquisition and integration costs of $ 52 , substantially all of which related to the Atotech Acquisition.

Upon completion of the related projects, the Company expects the IPR&D intangible asset to be amortized over its estimated useful life of eight to nine years .

During the fourth quarter of 2022, the Company recorded adjustments to balances reported as of, and for the period ended, September 30, 2022, resulting from foreign currency translation of the preliminary allocation of intangible assets and goodwill from the Atotech Acquisition in August 2022 and the related effect on cumulative translation adjustment and deferred tax liabilities.

The adjustments recorded were to correct an overstatement of goodwill of $ 43 , intangible assets, net of $ 56 , and non-current deferred tax liabilities of $ 38 , and an understatement of accumulated other comprehensive income and other comprehensive income of $ 61 .

These adjustments that the Company recorded did not affect net income, earnings per share or the statement of cash flows.

The Company assessed these adjustments in accordance with SEC Staff Accounting Bulletin (“SAB”) No.

These adjustments that the Company recorded did not affect net income, earnings per share or the consolidated statements of cash flows.

The Company assessed these adjustments in accordance with SEC Staff Accounting Bulletin (“SAB”) No.

99 and SAB No.

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• applying the Company’s accounting policies;

Incremental interest expense related to the New Term Loan Facility;

• incremental interest expense related to the Term Loan Facility;

• incremental amortization of acquired intangible assets related to the estimated fair value from the purchase price allocation;

• the exclusion of inventory step-up amortization in 2022 and the addition of this amortization to 2021;

Incremental depreciation of acquired property, plant and equipment related to the estimated fair value from the purchase price allocation;

Incremental compensation expense for share-based compensation arrangements;

The estimated tax impact of the above adjustments.

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

• incremental depreciation of acquired property, plant and equipment related to the estimated fair value from the purchase price allocation;

• incremental compensation expense for share-based compensation arrangements;

• the estimated tax impact of the above adjustments.

Photon Control

On July 15, 2021 , the Company completed its acquisition of Photon Control Inc.

(“Photon Control”), a Canadian corporation (the “Photon Control Acquisition”), pursuant to a definitive agreement (the “Arrangement Agreement”).

Photon Control designs, manufactures and distributes a wide range of optical sensors and systems to measure temperature and position used in semiconductor wafer fabrication.

At the effective time of the Photon Control Acquisition and pursuant to the terms and conditions of the Arrangement Agreement, each share of Photon Control’s common stock issued and outstanding as of immediately prior to the effective time of the Photon Control Acquisition, was converted into the right to receive CAD 3.60 per share in cash, without interest and subject to deduction for any required withholding tax.

The Company funded the payment of the aggregate consideration with available cash on hand.

Photon Control is included in the Company’s PSD segment.

The purchase price of Photon Control consisted of the following:

4 unchanged sentences

Any excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed is allocated to goodwill.

The Company expects that none of such goodwill or intangible assets will be deductible for tax purposes.

The Company believes the amount of goodwill relative to identifiable intangible assets relates to enhancing the Company’s Surround the Wafer® offering by adding optical sensors for temperature control for critical etch and deposition applications in semiconductor wafer fabrication.

None of the goodwill or intangible assets will be deductible for tax purposes.

The following table summarizes the allocation of the purchase price to the fair values assigned to assets acquired and liabilities assumed at the date of the Photon Control Acquisition:

5 unchanged sentences

Non-current deferred taxes

Other non-current liabilities

Other long-term liabilities

Total liabilities assumed

6 unchanged sentences

Customer relationships

The fair value of the acquired intangible assets was determined using the income approach.

In performing these valuations, the key underlying assumptions used included the appropriate discount rates as well as forecasted revenue growth rates, gross profit and operating expenses.

Fair value estimates are based on complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions.

The valuations were based on the information that was available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by the Company’s management.

There are inherent uncertainties and management judgment required in

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

these determinations.

The fair value of the acquired intangible assets was determined using the income approach.

In performing these valuations, the key underlying assumptions used included the appropriate discount rates as well as forecasted revenue growth rates, gross profit and operating expenses.

Fair value estimates are based on complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions.

The valuations were based on the information that was available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by the Company’s management.

There are inherent uncertainties and management judgment required in these determinations.

This acquisition resulted in a purchase price that exceeded the estimated fair value of tangible and intangible assets, the excess amount of which was allocated to goodwill.

The results of operations of the Photon Control business from the Photon Control Acquisition closing date of July 15, 2021 through December 31, 2021, were not material to the Company's results of operations.

The acquisition was also not material to the Company’s results of operations, for the periods presented, on a pro forma basis.

(6) Revenue from Contracts with Customers

Contract assets as of December 31, 2023 and 2022 were $ 26 and $ 46 , respectively, and were included in other current assets.

The increase is attributable to the Atotech Acquisition.

A roll forward of the Company’s deferred revenue and customer advances is as follows:

Beginning balance, January 1 (1)

3 unchanged sentences

Ending balance, December 31 (2)

(1) Beginning deferred revenue and customer advances as of January 1, 2022 included $ 16 of current deferred revenue, $ 3 of long-term deferred revenue and $ 21 of current customer advances.

Beginning deferred revenue and customer advances as of January 1, 2021 included $ 18 of current deferred revenue, $ 6 of long-term deferred revenue and $ 13 of current customer advances.

(1) Beginning deferred revenue and customer advances as of January 1, 2023 included $ 94 of current deferred revenue and customer advances, and $ 2 of long-term deferred revenue.

Beginning deferred revenue and customer advances as of January 1, 2022 included $ 37 of current deferred revenue and customer advances, and $ 3 of long-term deferred revenue.

The majority of the beginning balance in 2023 and 2022 was recognized in each year.

(2) Ending deferred revenue and customer advances as of December 31, 2022 included $ 15 of current deferred revenue, $ 2 of long-term deferred revenue and $ 79 of current customer advances.

Ending deferred revenue and customer advances as of December 31, 2021 included $ 16 of current deferred revenue, $ 3 of long-term deferred revenue and $ 21 of current customer advances.

(2) Ending deferred revenue and customer advances as of December 31, 2023 included $ 77 of current deferred revenue and customer advances, and $ 2 of long-term deferred revenue.

Ending deferred revenue and customer advances as of December 31, 2022 included $ 94 of current deferred revenue and customer advances, and $ 2 of long-term deferred revenue.

Revenue from certain custom products, including MSD plating equipment, and revenue from certain service contracts are recorded over time.

Remaining product and services revenues are recorded at a point in time.

Disaggregation of Revenue

6 unchanged sentences

Total net revenues

Year Ended December 31, 2020

Net revenues:

Total net revenues

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

Year Ended December 31, 2021

Net revenues:

Total net revenues

Refer to Note 22 for revenue by reportable segment, geography and groupings of similar products.

(7) Investments

The following table shows the gross unrealized gains and (losses) aggregated by investment category for available-for-sale investments:

As of December 31, 2022

Short-term investments:

Available-for-sale investments:

Time deposits and certificates of deposit

As of December 31, 2022:

Long-term investments:

Available-for-sale investments:

Group insurance contracts

As of December 31, 2021:

Short-term investments:

Available-for-sale investments:

Time deposits and certificates of deposit

Commercial paper

treasury obligations

agency obligations

As of December 31, 2021

Long-term investments:

Available-for-sale investments:

Group insurance contracts

The tables above, which show the gross unrealized gains and (losses) aggregated by investment category for available-for-sale investments as of December 31, 2022 and 2021, reflect the inclusion within short-term investments of investments with contractual maturities greater than one year from the date of purchase.

Management has the ability, if necessary, to liquidate any of its investments in order to meet the Company’s liquidity needs in the next 12 months.

Accordingly, those investments with contractual maturities greater than one year from the date of purchase are classified as short-term on the accompanying balance sheets.

For both short-term and long-term investments, the cost approximates the fair value.

For the years ended December 31, 2023 and 2022, the gross unrealized gains and losses were immaterial.

Management has the ability, if necessary, to liquidate any of its investments in order to meet the Company’s liquidity needs in the next 12 months.

Accordingly, those investments with contractual maturities greater than one year from the date of purchase are classified as short-term on the accompanying consolidated balance sheets.

Interest income is accrued as earned.

Dividend income is recognized as income on the date the security trades “ex-dividend.”

Realized gains or losses are reflected in income and were not material in 2022, 2021 and 2020 .

Dividend income is recognized as income on the date the security trades “ex-dividend.” Realized gains or losses are reflected in income and were no t material in 2023, 2022 and 2021 .

(8) Fair Value Measurements

In accordance with the provisions of fair value accounting, a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability and defines fair value based upon an exit price model.

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

The fair value measurement guidance establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

10 unchanged sentences

In such cases, the Company categorizes such assets and liabilities based on the lowest level input that is significant to the fair value measurement in its entirety.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset.

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

Assets and liabilities of the Company measured at fair value on a recurring basis as of December 31, 2023, are summarized as follows:

Fair Value Measurements at Reporting Date Using

December 31, 2023

Quoted Prices in

4 unchanged sentences

Money market funds

Time deposits

Available-for-sale securities:

Time deposits and certificates of deposit

Group insurance contracts

Foreign exchange forward contracts

Interest rate hedge - current

Interest rate hedge - non-current

4 unchanged sentences

Cash and cash equivalents (1)

Short-term investments

Other current assets

1 unchanged sentence

Other current liabilities

(1) The cash and cash equivalents amount presented in the table above does not include cash of $ 507 as of December 31, 2023.

MKS INSTRUMENTS, INC.

10 unchanged sentences

Money market funds

treasury obligations

Available-for-sale securities:

Time deposits and certificates of deposit

Commercial paper

treasury obligations

agency obligations

Group insurance contracts

Derivatives-foreign exchange forward contracts

Derivatives-foreign currency options

Derivatives-interest rate hedge-non-current

Funds in investments and other assets:

Israeli pension assets

Deferred compensation plan assets:

Mutual funds and exchange traded funds

Derivatives –

Foreign exchange forward contracts

Derivatives –

interest rate hedge –

Interest rate hedge-non-current

Pension and deferred compensation plan assets

Foreign exchange forward contracts

Total liabilities

4 unchanged sentences

Total current assets

Long-term investments

Total long-term assets

Other current liabilities

Other liabilities

(1) The cash and cash equivalents amount presented in the table above does not include cash of $ 849 as of December 31, 2022 .

Other Fair Value Disclosures

The estimated fair value and carrying value of the Company’s debt as of December 31, 2022 and 2021 is as follows:

The estimated fair value and carrying value of the Company’s debt as of December 31, 2023 and 2022 is as follows:

Carrying Value

1 unchanged sentence

Total debt, excluding deferred financing costs

The estimated fair value of the Company’s debt was determined using available market information based on recent trades or activity of debt instruments with substantially similar risks, terms and maturities, which fall within Level 2 under the fair value hierarchy.

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

Money Market Funds

3 unchanged sentences

These investments are set aside for retirement benefits of certain of the Company's subsidiaries.

As a result of the Company’s global operating activities, the Company is exposed to market risks from changes in foreign currency exchange rates and variable interest rates, which may adversely affect its operating results and financial position.

When deemed appropriate, the Company minimizes its risks from foreign currency exchange rate and interest rate fluctuations through the use of derivative financial instruments.

2 unchanged sentences

The foreign exchange forward contracts, options and interest rate hedge are valued using broker quotations, or market transactions and are classified within Level 2 of the fair value hierarchy.

8) Derivatives

(9) Derivatives and Net Investment Hedge

Foreign Exchange Forward Contracts

The Company hedges a portion of its forecasted foreign currency-denominated intercompany sales of inventory, over a maximum period of eighteen months , using foreign exchange forward contracts accounted for as cash-flow hedges.

To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, and otherwise meet the hedge accounting criteria, changes in the derivatives' fair value are not included in current earnings but are included in other comprehensive income ( “OCI”) in stockholders' equity.

These changes in fair value will subsequently be reclassified into earnings, as applicable, when the forecasted transaction occurs.

2 unchanged sentences

The Company does not enter into derivative instruments for trading or speculative purposes.

The Company also enters into foreign exchange forward contracts to hedge against changes in the balance sheet for certain subsidiaries to mitigate the risk associated with certain foreign currency transactions in the ordinary course of business.

These derivatives are not designated as cash flow hedging instruments and gains or losses from these derivatives are recorded immediately in other (income) expense, net.

The Company also enters into foreign exchange forward contracts to hedge against changes in the consolidated balance sheets for certain subsidiaries to mitigate the risk associated with certain foreign currency transactions in the ordinary course of business.

These derivatives are not designated as cash flow hedging instruments and gains or losses from these derivatives are recorded immediately in other expense, net.

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

As of December 31, 2022 and 2021 , the Company had outstanding foreign exchange forward contracts.

The following tables provide a summary of the primary net hedging positions and corresponding fair values held as of December 31, 2022 and 2021:

The following tables provide a summary of the primary net hedging positions and fair values of foreign exchange forward contracts outstanding as of December 31, 2023 and 2022:

December 31, 2023

Currency Hedged (Buy/Sell)

Fair Value Asset (Liability)

Fair Value Liability

dollar/Japanese yen

1 unchanged sentence

dollar/Taiwan dollar

pound sterling

dollar/Singapore dollar

1 unchanged sentence

Euro/Chinese renminbi

pound sterling/euro

Euro/Canadian dollar

dollar/Mexican peso

pound sterling/U.S.

December 31, 2022

Currency Hedged (Buy/Sell)

Fair Value Asset

Fair Value (Liability) Asset

dollar/Japanese yen

dollar/South Korean won

pound sterling

dollar/Taiwan dollar

The following table provides a summary of the net gain (loss) on derivatives designated as cash flow hedging instruments:

pound sterling

dollar/Singapore dollar

dollar/Chinese renminbi

Euro/Chinese renminbi

pound sterling/Euro

The following table provides a summary of the net (losses) gains on derivatives designated as cash flow hedging instruments:

Years Ended December 31,

Foreign exchange forward contracts:

Net gain (loss) recognized in accumulated OCI

Net gain (loss) reclassified from accumulated OCI into income

The net amount of existing gains as of December 31, 2022 expected to be reclassified from OCI into earnings within the next 12 months is immaterial.

Interest Rate Swap and Interest Rate Cap Agreements

The Company has various interest rate swap agreements that exchange a forward-looking term rate based on the variable secured overnight financing rate (“Term SOFR”) paid on the outstanding balance of its New Term Loan Facility, as defined and further described in Note 14, to a fixed rate.

The Company acquired USD LIBOR interest rate cap agreements as a result of the Atotech Acquisition and is utilizing these agreements to offset the variable Term SOFR rate on its New Term Loan Facility.

The Company's USD LIBOR based swaps and USD LIBOR based interest rate caps will convert to Term SOFR after LIBOR's termination in June 2023 according to the terms of each

Forward exchange contracts:

Net (losses) gains recognized in OCI, net of tax

Net gains (losses) reclassified from accumulated OCI into income

The net amount of existing (losses) gains as of December 31, 2023 expected to be reclassified from OCI into earnings within the next 12 months is immaterial.

Net Investment Hedge

On January 1, 2023, the Company designated certain Euro-denominated debt as a net investment hedge to hedge a portion of its net investments in certain of its entities with functional currencies denominated in the Euro.

As of December 31, 2023, the Company designated as a net investment hedge € 593 million in aggregate principal amount of its Euro Tranche B issued in August 2022.

For these net investment hedges, the Company defers recognition of the foreign currency remeasurement gains and losses within the foreign currency translation adjustment component of OCI.

There was no net investment hedge designated in 2022 and all remeasurement gains and losses were recorded to the consolidated statements of operations and comprehensive (loss) income.

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

Interest Rate Agreements

The Company has various interest rate swap agreements that exchange a forward-looking term rate based on the variable secured overnight financing rate (“ Term SOFR”) paid on the outstanding balance of its Term Loan Facility, as defined and further described in Note 15, to a fixed rate.

The Company acquired USD London Interbank Offered Rate (“USD LIBOR”) interest rate cap agreements as a result of the Atotech Acquisition and had utilized these agreements to offset the variable Term SOFR on its Term Loan Facility.

Effective June 30, 2023, the Company’s USD LIBOR based interest rate caps were converted to Term SOFR.

The Company also had two USD LIBOR based swaps that were converted to Term SOFR, effective June 30, 2023.

The conversions from USD LIBOR to Term SOFR did not have a material impact on the Company’s results of operations.

The table below summarizes interest rate swaps and interest rate caps outstanding at December 31, 2023 and December 31, 2022:

As of December 31,

Years Ended December 31,

Effective Date

December 31, 2022

Notional Amount at December 31, 2023

Interest Rate Swaps

April 5, 2019

March 31, 2023

October 26, 2021

June 30, 2023

February 28, 2025

March 31, 2022

June 30, 2023

February 28, 2025

9 unchanged sentences

September 30, 2026

March 31, 2020

December 28, 2023

December 31, 2027

Interest Rate Caps

June 30, 2023

January 31, 2024

March 31, 2020

June 30, 2023

January 31, 2024

The interest rate swaps are recorded at fair value on the balance sheet and changes in the fair value are recognized in OCI.

To the extent these arrangements are no longer effective hedges, any ineffectiveness measured in the hedging relationships is recorded immediately in earnings in the period it occurs.

The interest rate swaps are recorded at fair value on the consolidated balance sheets and changes in the fair value are recognized in OCI.

To the extent these arrangements are no longer effective hedges, the hedging relationship will be discontinued and changes in the fair value of the hedging instruments from the last assessment period that were effective up to the current period will be recorded immediately in earnings.

Amounts previously recorded in OCI will remain in OCI and will be reclassified to earnings when the interest payments impact consolidated earnings.

If the Company determines that the interest payments are unlikely to occur, amounts previously recorded in OCI will be reclassified to earnings immediately.

Changes in the fair value of interest rate caps are recorded immediately in earnings, as the Company has not designated these instruments as hedges and therefore these instruments do not qualify for hedge accounting.

The following table provides a summary of gain (loss) on derivatives not designated as cash flow hedging instruments:

The following table provides a summary of (losses) gains on derivatives not designated as cash flow hedging instruments:

Years Ended December 31,

Net (loss) gain recognized in income

Net (losses) gains recognized in income

Currency Option Agreements

4 unchanged sentences

(in millions, except per share data)

in 2021 to fix the conversion of EUR 300 into U.S.

in 2021 to fix the conversion of € 300 into U.S.

The options settled on January 31, 2022 and the Company recorded a gain of $ 5 , net of premiums, which is included in other expense, net.

22 unchanged sentences

Operating lease (1)

Finance lease

Finance lease costs

Short-term lease

Total lease expense

Total lease cost

(1) Operating lease expense includes an immaterial amount of variable expenses, offset by certain sublease rental income.

6 unchanged sentences

Operating cash flows used for operating leases (1)

Operating cash flows used for finance leases

Financing cash flows used for finance leases

5 unchanged sentences

Years Ended December 31,

Weighted-average remaining lease term in years-operating leases

Weighted-average remaining lease term in years-finance leases

Weighted-average remaining lease term-operating leases

Weighted-average remaining lease term-finance leases

Weighted-average discount rate-operating leases

2 unchanged sentences

Year Ending December 31,

Operating Leases

Finance Leases

Total lease payments

1 unchanged sentence

Total lease liabilities

Amounts presented above do not include payments relating to immaterial leases excluded from the balance sheet as well as leases with terms of less than twelve months.

Amounts presented above do not include payments relating to immaterial leases excluded from the consolidated balance sheets as well as leases with terms of less than twelve months.

(13) Goodwill and Intangible Assets

The Company's methodology for allocating the purchase price relating to purchase acquisitions is determined through established and generally accepted valuation techniques.

The Company’s methodology for allocating the purchase price of an acquisition is determined through established and generally accepted valuation techniques.

Goodwill is measured as the excess of the cost of the acquisition over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed.

1 unchanged sentence

If the products obtained in an acquisition are assigned to multiple reporting units, the goodwill is distributed to the respective reporting units as part of the purchase price allocation process.

Goodwill and purchased intangible assets with indefinite useful lives are not amortized but are reviewed for impairment annually during the fourth quarter of each fiscal year and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

The process of evaluating the potential impairment of goodwill and intangible assets requires significant judgment.

Goodwill and intangible assets with indefinite useful lives are not amortized but are reviewed for impairment annually during the fourth quarter of each fiscal year or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

To measure impairment, the Company compares the fair value of the reporting unit to its carrying amount, which includes goodwill.

If the fair value of the reporting unit exceeds the carrying value of the reporting unit, no impairment exists.

If the fair value of the reporting unit is less than the carrying value of the reporting unit, a goodwill impairment is recorded.

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

Amortizable intangible assets and other long-lived assets are also subject to an impairment test if there is an indicator of impairment.

When the Company determines that the carrying value of intangible assets or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, the Company uses the projected undiscounted cash flow method to determine whether an impairment exists, and then measures the impairment using discounted cash flows.

The process of evaluating the potential impairment of goodwill, intangible assets and other long-lived assets requires significant judgment.

The Company regularly monitors current business conditions and other factors, including, but not limited to, adverse industry or economic trends, restructuring actions and lower projections of profitability that may impact future operating results.

During the quarter ended June 30, 2022, following softening industry demand for flexible printed

The Company’s stock price and any estimated control premium are factors affecting the assessment of the fair value of the Company’s underlying reporting units for purposes of performing any goodwill impairment assessment.

During the quarter ended June 30, 2023, the Company identified softer industry demand, particularly in the personal computer and smartphone markets, and concluded there was a triggering event at each of its electronics (“EL”) and general metal finishing reporting (“GMF”) units, which together constitute MSD, and the equipment solutions business (“ESB”) reporting unit of PSD.

For MSD, the Company concluded information on the softening of industry demand as of the filing date of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 did not exist as of the Effective Date.

For each of the three reporting units, the Company performed a quantitative assessment of goodwill using a weighting of an income approach and market approach.

The income approach was based upon projected future cash flows that were discounted to present value and an assumed terminal growth rate.

The market approach for each of the three reporting units incorporated observed multiples of guideline public companies.

The market approach for the EL and GMF reporting units also incorporated multiples from guideline transactions.

Fair value estimates are based on complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions that have been deemed reasonable by the Company’s management.

There are inherent uncertainties and management judgment required in these determinations.

This quantitative assessment during the quarter ended June 30, 2023 resulted in the following:

Reporting Unit

Goodwill Impairment

Remaining Goodwill

General Metal Finishing

Equipment Solutions Business

In addition, the Company used an income approach to determine the fair value of the long-lived and indefinite-lived intangible assets within these reporting units (Level 3 within the fair value hierarchy).

These valuations resulted in a $ 20 fair value and $ 152 impairment of completed technology within the ESB reporting unit and a $ 72 fair value and $ 49 impairment of IPR&D within the EL reporting unit.

After evaluating forecast updates and carrying values, the Company did not identify impairments at any other of its reporting units.

For the completed technology valuation within the ESB reporting unit, the forecasted future undiscounted cash flows were consistent with the Company’s goodwill analysis, using an approximate 7 year useful life, an 8 % weighted-average forecasted revenue growth rate, and a discount rate of 13.5 %.

For the IPR&D intangible asset within the EL reporting unit, the forecasted undiscounted future cash flows utilized were consistent with the Company’s goodwill analysis, with estimated time to complete in-process projects of up to 2 years, and a discount rate of 12.5 %.

During the quarter ended September 30, 2023, the Company identified a further decrease in demand and an increase in the discount rate at the ESB reporting unit.

The Company performed a quantitative assessment of goodwill using an income approach that was based upon projected future cash flows that were discounted to present value and an assumed terminal growth rate.

The key underlying assumptions included forecasted revenues, which incorporated external market data, terminal growth rate, gross profit and operating expenses, as well as the discount rate.

The Company concluded that there was no goodwill or intangible asset impairment at the ESB reporting unit in the third quarter.

The Company also considered other quantitative and qualitative considerations, including the decline in public market capitalization since June 30, 2023, and determined there were no triggering events for its other reporting units or asset groups in the third quarter.

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

circuit board (“PCB”) via drilling systems and declines in projected operating results for its ESB reporting unit, the Company evaluated the carrying values of goodwill, purchased intangible assets and other long-lived assets assigned to the reporting unit and determined the carrying values were recoverable.

The Company performed its analysis using the income approach and key underlying assumptions included forecasted revenue, gross profit and operating expenses as well as discount rate.

As of October 31, 2023, the Company performed its annual goodwill and intangible asset impairment assessment by bypassing the qualitative assessment and using a quantitative assessment for all its reporting units.

For the EL, GMF and ESB reporting units, the Company performed a quantitative assessment of goodwill using an equal weighting of an income approach and market approach and for the VSD and remaining PSD reporting units used an income approach.

The income approach was based upon projected future cash flows that were discounted to present value and an assumed terminal growth rate.

The market approach incorporated observed multiples of guideline public companies.

The market approach for the EL and GMF reporting units also incorporated multiples from guideline transactions.

There are inherent uncertainties and management judgment required in these determinations.

In its quantitative assessment of the reporting unit, the Company estimated fair value exceeded carrying value by 10 %.

The Company determined that there were no further triggering events that required an impairment assessment during the remainder of the year ended December 31, 2022 for its ESB reporting unit.

This quantitative assessment during the quarter ended December 31, 2023 resulted in the following:

Reporting Unit

Goodwill Impairment

Remaining Goodwill

General Metal Finishing

Equipment Solutions Business

There was no goodwill impairment at any of the Company’s other reporting units.

The Company will continue to monitor for future triggering events which could result in an impairment charge.

These valuations resulted in a $ 14 impairment of IPR&D within the EL reporting unit as it was determined that there was no remaining fair value in its remaining projects.

After evaluating forecast updates and carrying values, the Company did not identify impairments at any other of its reporting units.

The changes in the carrying amount of goodwill and accumulated impairment losses were as follows:

Beginning balance at January 1

Impairment of goodwill

Acquired goodwill

Foreign currency translation

Foreign currency translation and measurement period adjustments

Ending balance at December 31

(1) During the year ended December 31, 2022 , the Company recorded goodwill related to the Atotech Acquisition.

During the year ended December 31, 2021, the Company recorded goodwill related to the Photon Control Acquisition.

See Note 4 to the Notes to Consolidated Financial Statements.

During the twelve months ended December 31, 2022, the Company recorded goodwill related to the Atotech Acquisition.

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

Intangible Assets

Components of the Company's intangible assets are comprised of the following:

The Company’s intangible assets are comprised of the following:

As of December 31, 2023

Accumulated Impairment

Impairment Charges

Accumulated Amortization

Foreign Currency

Translation and Measurement

Period Adjustments

Completed technology

1 unchanged sentence

Patents, trademarks, trade names and other

(1) During the year ended December 31, 2022 , the Company recorded $ 2,726 of separately identified intangible assets related to the Atotech Acquisition, including $ 595 in completed technology, $ 1,756 in customer relationships and $ 375 in patents, trademarks, trade names and other.

During the twelve months ended December 31, 2023, $ 117 of IPR&D included with patents, trademarks, trade names and other was reclassified into completed technology.

As of December 31, 2022

3 unchanged sentences

Patents, trademarks, trade names and other

(1) During the year ended December 31, 2021, the Company recorded $ 121 of separately identified intangible assets related to the Photon Control Acquisition, representing $ 110 in completed technology, $ 9 in customer relationships and $ 2 in patents, trademarks, trade names and other.

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

Aggregate amortization expense related to acquired intangible assets for 2023, 2022 and 2021 was $ 295 , $ 146 and $ 55 , respectively.

Aggregate net amortization expense related to acquired intangible assets for future years is:

The Company excluded from the above table intangible assets of $ 56 of indefinite-lived trademarks and trade names, and $ 190 of in-process research and development, which were not subject to amortization.

The Company excluded from the above table intangible assets of $ 56 of indefinite-lived trademarks and trade names, which were not subject to amortization.

(14) Product Warranties

7 unchanged sentences

Provision for product warranties

Assumed product warranty liability from Photon Control Acquisition

Assumed product warranty liability from Atotech Acquisition

1 unchanged sentence

Ending balance

Short-term product warranties of $ 19 and long-term product warranties of $ 8 , each as of December 31, 2022 , are included within other current liabilities and other non-current liabilities, respectively, within the accompanying consolidated balance sheet.

Short-term product warranties of $ 20 and long-term product warranties of $ 1 , each as of December 31, 2021 , are included within other current liabilities and other non-current liabilities, respectively, within the accompanying consolidated balance sheet.

The Company’s outstanding debt is as follows:

Short-term debt:

New Term Loan Facility

Prior Term Loan Facility

Total short-term debt

Long-term debt:

New Term Loan Facility, net (1)

Prior Term Loan Facility, net (1)

Total long-term debt

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

(1) Net of remaining deferred financing fees, original issuance discount and repricing fees in the aggregate of $ 195 and $ 8 as of December 31, 2022 and 2021, respectively.

The Company recognized interest expense of $ 177 , $ 25 and $ 29 for the years ended December 30, 2022, 2021 and 2020, respectively.

New Term Loan Facility and New Revolving Facility

In connection with the completion of the Atotech Acquisition, the Company entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, Barclays Bank PLC, and the lenders from time to time party thereto (the “New Credit Agreement”).

The New Credit Agreement provides for (i) a senior secured term loan facility (the “

New Term Loan Facility”) comprised of three tranches:

a USD 1,000 loan (the “

USD Tranche A”), a USD 3,600 loan (the “

USD Tranche B”) and a EUR 600 loan (the “

Euro Tranche B”), each of which were borrowed in full on the Effective Date, and (ii) a senior secured revolving credit facility of USD 500 (the “New Revolving Facility”

and, together with the New Term Loan Facility, the “New Credit Facilities”), with the commitments under each of the foregoing facilities subject to increase from time to time subject to certain conditions.

Borrowings under the New Credit Facilities bear interest at a rate per annum equal to, at the Company's option, any of the following, plus, in each case, an applicable margin:

(a) with respect to the USD Tranche A, the USD Tranche B and the New Revolving Facility, (x) a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50 %, (2) the prime rate quoted in The Wall Street Journal , or (3) a forward-looking term rate based on Term SOFR (plus an applicable credit spread adjustment) for an interest period of one month, plus 1.00 %;

and (y) a Term SOFR rate (plus an applicable credit spread adjustment) for the interest period relevant to such borrowing, subject to a rate floor of (I) with respect to the USD Tranche B, 0.50 % and (II) with respect to the USD Tranche A and the New Revolving Facility, 0.0 %;

and (b) with respect to the Euro Tranche B, a EURIBOR rate determined by reference to the costs of funds for Euro deposits for the interest period relevant to such borrowing adjusted for certain additional costs, subject to a EURIBOR rate floor of 0.0 %.

Short-term product warranties of $ 15 and long-term product warranties of $ 7 , each as of December 31, 2023, are included within other current liabilities and other non-current liabilities, respectively, within the accompanying consolidated balance sheets.

The Company’s outstanding debt is as follows:

Short-term debt:

Term Loan Facility

Long-term debt:

Term Loan Facility, net

Long-term debt is net of remaining deferred financing fees, original issuance discount and repricing fees in the aggregate of $ 164 and $ 195 as of December 31, 2023 and 2022, respectively.

Credit Facilities

The Credit Agreement provides for (i) a senior secured term loan facility comprised of three tranches:

a $ 1,000 loan (the “USD Tranche A”), a $ 3,600 loan (the “2022 USD Tranche B” and together with the 2023 USD Tranche B (as defined below), as the context may require, the “USD Tranche B”) and a € 600 loan (the “Euro Tranche B” and together with the USD Tranche A and the USD Tranche B, the “Term Loan Facility”), each of which were borrowed in full on the Effective Date, and (ii) a senior secured revolving credit facility of $ 500 (the “Revolving Facility” and, together with the Term Loan Facility, the “Credit Facilities”), with the commitments under each of the foregoing facilities subject to increase from time to time subject to certain conditions .

The USD Tranche A and the Revolving Facility have a maturity date in August 2027 while the USD Tranche B and Euro Tranche B have a maturity date in August 2029 .

B orrowings under the Credit Facilities bear interest at a rate per annum equal to, at the Company’s option, any of the following, plus, in each case, an applicable margin:

(a) with respect to the USD Tranche A, the Revolving Facility and, prior to the effectiveness of the First Amendment (as defined below), the USD Tranche B, (x) a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50 %, (2) the prime rate quoted in The Wall Street Journal , or (3) a forward-looking term rate based on Term SOFR (plus an applicable credit spread adjustment) for an interest period of one month, plus 1.00 %;

and (b) with respect to the Euro Tranche B, a Euro Interbank Offered Rate (“EURIBOR”) rate determined by reference to the costs of funds for Euro deposits for the interest period relevant to such borrowing adjusted for certain additional costs, subject to a EURIBOR rate floor of 0.0 %.

The USD Tranche A was issued with original issue discount of 0.25 % of the principal amount thereof.

1 unchanged sentence

The applicable margin for borrowings under the USD Tranche A is 1.50 % with respect to base rate borrowings and 2.50 % with respect to Term SOFR borrowings.

The applicable margin for borrowings under the USD Tranche B is 1.75 % with respect to base rate borrowings and 2.75 % with respect to Term SOFR borrowings.

Prior to the effectiveness of the First Amendment, the applicable margin for borrowings under the USD Tranche B was 1.75 % with respect to base rate borrowings and 2.75 % with respect to Term SOFR borrowings.

The applicable margin for borrowings under the Euro Tranche B is 3.00 %.

The initial applicable margin for borrowings under the New Revolving Facility is 1.50 % with respect to base rate borrowings and 2.50 % with respect to Term SOFR borrowings.

Commencing with the delivery of financial statements with respect to the first quarter ending after the closing of the New Credit Agreement, the applicable margin for borrowings under the New Revolving Facility is subject to adjustment each fiscal quarter, based on the Company's first lien net leverage ratio as of the end of the preceding quarter.

In addition to paying interest on outstanding principal under the New Credit Facilities, the Company is required to pay a commitment fee in respect of the unutilized commitments under the New Revolving Facility.

The applicable margin for borrowings under the Revolving Facility is 1.50 % with respect to base rate borrowings and 2.50 % with respect to Term SOFR borrowings .

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

In a ddition to paying interest on outstanding principal under the Credit Facilities, the Company is required to pay a commitment fee in respect of the unutilized commitments under the Revolving Facility.

The initial commitment fee is 0.375 % per annum.

Commencing with the delivery of financial statements with respect to the first quarter ending after the closing of the New Credit Agreement, the commitment fee is subject to downward adjustment based on the Company's first lien net leverage ratio as of the end of the preceding quarter.

Commencing with the delivery of financial statements with respect to the first quarter ending after the closing of the Credit Agreement, the commitment fee is subject to downward adjustment based on the Company’s first lien net leverage ratio as of the end of the preceding quarter.

The Company must also pay customary letter of credit fees and agency fees .

The Company incurred $ 242 of deferred financing fees and original issue discount fees related to the term loans under the New Term Loan Facility, which are included in long-term debt in the accompanying consolidated balance sheets and are being amortized to interest expense over the estimated life of the term loans using the effective interest method.

A portion of the deferred financing fees and original issue discount has been accelerated in connection with the debt prepayment and extinguishment of the Prior Term Loan Facility (as defined below) .

Under the New Credit Agreement, the Company is required to prepay outstanding term loans, subject to certain exceptions, with portions of its annual excess cash flow as well as with the net cash proceeds of certain of its asset sales, certain casualty and condemnation events and the incurrences or issuances of certain debt.

If at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the New Revolving Facility exceeds the aggregate commitments under the New Revolving Facility, the Company is required to repay outstanding loans and/or cash collateralize letters of credit, with no reduction of the commitment amount.

On October 3, 2023 (the “First Amendment Effective Date”), the Company entered into the First Amendment to Credit Agreement (the “First Amendment”), which refinanced all of the $ 3,564 outstanding 2022 USD Tranche B (such refinanced loans, the “2023 USD Tranche B”) to (i) decrease the applicable margin for the USD Tranche B from 1.75 % to 1.50 % with respect to base rate borrowings and from 2.75 % to 2.50 % with respect to Term SOFR borrowings and (ii) remove the credit spread adjustments applicable to borrowings of the USD Tranche B based on Term SOFR.

The 2023 USD Tranche B were issued with original issue discount of 0.25 % of the principal amount thereof .

On October 31, 2023, the Company made a voluntary prepayment of $ 100 aggregate principal on the USD Tranche A.

On December 12, 2022, the Company made a voluntary prepayment of $ 100 aggregate principal on the USD Tranche A.

The Company incurred $ 242 of deferred financing fees and original issue discount related to the term loans under the Term Loan Facility funded on the Effective Date, which are included in long-term debt, net in the accompanying consolidated balance sheets and are being amortized to interest expense over the estimated life of the term loans using the effective interest method.

A portion of the deferred financing fees and original issue discount was accelerated in connection with the extinguishment of the Company’s previously existing term loan facility concurrently with the Company’s entry into the Term Loan Facility .

T he Company incurred $ 11 of deferred financing fees and original issue discount related to the term loans under the 2023 USD Tranche B funded on the First Amendment Effective Date, of which $ 9 is included in long-term debt, net in the accompanying consolidated balance sheets and is being amortized to interest expense over the estimated life of the term loans using the effective interest method.

The Company recorded an $ 8 loss on extinguishment of debt in connection with the First Amendment of the 2022 USD Tranche B.

In connection with the various voluntary prepayments in 2022 and 2023, the Company wrote off a portion of the deferred financing costs related to the prepayments.

Under the Credit Agreement, the Company is required to prepay outstanding term loans, subject to certain exceptions, with portions of its annual excess cash flow as well as with the net cash proceeds of certain of its asset sales, certain casualty and condemnation events and the incurrence or issuances of certain debt.

If at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the Revolving Facility exceeds the aggregate commitments under the Revolving Facility, the Company is required to repay outstanding loans and/or cash collateralize letters of credit, with no reduction of the commitment amount.

The Company may voluntarily prepay outstanding loans under the Credit Facilities from time to time, subject to certain conditions, without premium or penalty other than customary “breakage” costs with respect to Term SOFR or EURIBOR loans;

provided, however, that subject to certain exceptions, (i) if on or prior to the date that was twelve months after the Effective Date, the Company prepaid any loans under the 2022 USD Tranche B or the Euro Tranche B in connection with a repricing transaction, the Company would have been required to pay a prepayment premium of 1.00 % of the aggregate principal amount of the loans so prepaid and (ii) if on or prior to the date that is six months after the First Amendment Effective Date, the Company prepaid any loans under the 2023 USD Tranche B in connection with a repricing transaction, the Company must pay a prepayment premium of 1.00 % of the aggregate principal amount of the loans so prepaid.

Additionally, the Company may voluntarily reduce the unutilized portion of the commitment amount under the Revolving Facility .

The Company is required to make scheduled quarterly payments each equal to 1.25 % of the original principal amount of the USD Tranche A (increasing to 1.875 % in years 3 and 4 and 2.50 % in year 5), 0.25 % of the original principal amount of the Euro Tranche B and 0.25 % of the original principal amount of the 2023 USD Tranche B, with the balance due thereunder on the fifth anniversary of the closing date in the case of the USD Tranche A and the seventh anniversary of the closing date in the case of the USD Tranche B and the Euro Tranche B .

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

The Company may voluntarily prepay outstanding loans under the New Credit Facilities from time to time, subject to certain conditions, without premium or penalty other than customary “breakage”

costs with respect to Term SOFR or EURIBOR loans;

provided, however, that subject to certain exceptions, if on or prior to the date that is twelve months after the closing date of the New Term Loan Facility, the Company prepays any loans under the USD Tranche B or the Euro Tranche B in connection with a repricing transaction, the Company must pay a prepayment premium of 1.00 % of the aggregate principal amount of the loans so prepaid.

Additionally, the Company may voluntarily reduce the unutilized portion of the commitment amount under the New Revolving Facility.

The Company is required to make scheduled quarterly payments each equal to 1.25 % of the original principal amount of the USD Tranche A (increasing to 1.875 % in years 3 and 4 and 2.50 % in year 5) and 0.25 % of the original principal amount of the USD Tranche B and the Euro Tranche B, beginning with the fiscal quarter ending December 31, 2022, with the balance due thereunder on the fifth anniversary of the closing date in the case of the USD Tranche A and the seventh anniversary of the closing date in the case of the USD Tranche B and the Euro Tranche B.

There is no scheduled amortization under the New Revolving Facility.

Any principal amount outstanding under the New Revolving Facility is due and payable in full on the fifth anniversary of the closing date.

The Company incurred $ 7 of costs in connection with the New Revolving Facility, which were capitalized and included in other assets in the accompanying consolidated balance sheet and are being amortized to interest expense over the estimated life of four years .

As a result of the termination of the Prior ABL Credit Facility (as defined below) concurrently with the Company's entry into the New Revolving Facility, the Company wrote off an immaterial amount of previously capitalized debt issuance costs.

All obligations under the New Credit Facilities are guaranteed by certain of the Company's wholly-owned domestic subsidiaries and are required to be guaranteed by certain of the Company's future wholly-owned domestic subsidiaries, and are secured by substantially all of the Company's assets and the assets of such subsidiaries, subject to certain exceptions and exclusions.

Under the New Credit Agreement, the Company has the ability to incur additional incremental debt facilities in an amount up to (x) the greater of (1) $ 1,011 and (2) 75 % of consolidated EBITDA, plus (y) an amount equal to the sum of all voluntary prepayments of term loans under the New Term Loan Facility, plus (z) an additional unlimited amount subject to pro forma compliance with certain leverage ratio tests (based on the security and priority of such incremental debt).

Under the USD Tranche A and the New Revolving Facility, so long as any USD Tranche A loans (or commitments in respect thereof) are outstanding as of the end of any fiscal quarter, the Company may not allow its total net leverage ratio as of the end of such fiscal quarter to be greater than 5.50 to 1.00, with an annual step-down of 0.25 :1.00 and subject to a step-up of 0.50 :1.00 for the four full fiscal quarter period following any material acquisition, not to exceed 5.50 to 1.00.

In addition, in the event there are no loans outstanding under the USD Tranche A, as of the end of any fiscal quarter of the Company when the aggregate amount of loans outstanding under the New Revolving Facility (net of (a) all letters of credit (whether cash collateralized or not) and (b) unrestricted cash of the Company and its restricted subsidiaries) exceeds 35 % of the aggregate amount of all commitments under the New Revolving Facility in effect as of such date, the Company may not allow its first lien net leverage ratio as of the end of each such fiscal quarter to be greater than 6.00 to 1.00.

There is no scheduled amortization under the Revolving Facility.

Any principal amount outstanding under the Revolving Facility is due and payable in full on the fifth anniversary of the closing date.

The Company incurred $ 7 of costs in connection with the Revolving Facility, which were capitalized and included in other assets in the accompanying consolidated balance sheets and are being amortized to interest expense over the estimated life of four years .

As a result of the termination of the Company’s previously existing revolving credit facility concurrently with the Company’s entry into the Revolving Facility, the Company wrote off an immaterial amount of previously capitalized debt issuance costs .

All obligations under the Credit Facilities are guaranteed by certain of the Company’s wholly-owned domestic subsidiaries and are required to be guaranteed by certain of the Company’s future wholly-owned domestic subsidiaries, and are secured by substantially all of the Company’s assets and the assets of such subsidiaries, subject to certain exceptions and exclusions.

Under the Credit Agreement, the Company has the ability to incur additional incremental debt facilities in an amount up to (x) the greater of (1) $ 1,011 and (2) 75 % of consolidated EBITDA, plus (y) an amount equal to the sum of all voluntary prepayments of term loans under the Term Loan Facility, plus (z) an additional unlimited amount subject to pro forma compliance with certain leverage ratio tests (based on the security and priority of such incremental debt) .

Under the USD Tranche A and the Revolving Facility, so long as any USD Tranche A loans (or commitments in respect thereof) are outstanding as of the end of any fiscal quarter, the Company may not allow its total net leverage ratio as of the end of such fiscal quarter to be greater than 5.25 to 1.00 for the fiscal quarters ending December 31, 2023 through September 30, 2024, with an annual step-down of 0.25 :1.00 and subject to a step-up of 0.50 :1.00 for the four full fiscal quarter period following any material acquisition, not to exceed 5.50 to 1.00 .

In addition, in the event there are no loans outstanding under the USD Tranche A, as of the end of any fiscal quarter of the Company when the aggregate amount of loans outstanding under the Revolving Facility (net of (a) all letters of credit (whether cash collateralized or not) and (b) unrestricted cash of the Company and its restricted subsidiaries) exceeds 35 % of the aggregate amount of all commitments under the Revolving Facility in effect as of such date, the Company may not allow its first lien net leverage ratio as of the end of each such fiscal quarter to be greater than 6.00 to 1.00 .

The USD Tranche B and the Euro Tranche B are not subject to financial maintenance covenants.

The New Credit Agreement contains a number of negative covenants that, among other things and subject to certain exceptions, restrict the ability of the Company and each of its subsidiaries to incur additional indebtedness;

The Credit Agreement contains a number of negative covenants that, among other things and subject to certain exceptions, restrict the ability of the Company and each of its subsidiaries to:

incur additional indebtedness;

pay dividends on its capital stock or redeem, repurchase or retire its capital stock or its subordinated indebtedness;

6 unchanged sentences

and engage in sale-leaseback transactions.

The New Credit Agreement also contains customary representations and warranties, affirmative covenants and provisions relating to events of default.

If an event of default occurs, the lenders under the New Credit Facilities will be entitled to take various actions, including the acceleration of amounts due under the New Credit Facilities and all

The Credit Agreement also contains customary representations and warranties, affirmative covenants and provisions relating to events of default.

If an event of default occurs, the lenders under the Credit Facilities will be entitled to take various actions, including the acceleration of amounts due under the Credit Facilities and all actions permitted to be taken by a secured creditor.

As of December 31, 2023, the Company was in compliance with all covenants under the Credit Agreement.

The proceeds of the Term Loan Facility were used on the Effective Date, among other things, to fund a portion of the consideration payable in connection with the Atotech Acquisition and to refinance the existing term loan and revolving credit facilities of the Company and certain indebtedness of Atotech.

The Company also paid certain customary fees to and expenses of JPMorgan Chase Bank, N.A., Barclays Bank PLC, BofA Securities, Inc., Citibank, N.A., HSBC Securities (USA) Inc.

and Mizuho Bank, Ltd.

in their respective capacities as lead arrangers and bookrunners in connection with the Credit Facilities.

The proceeds of the 2023 USD Tranche B were used on the First Amendment Effective Date to refinance the 2022 USD Tranche B.

The Company also paid certain customary fees to and expenses of JPMorgan Chase Bank, N.A.

in its capacity as lead arranger in connection with the 2023 USD Tranche B.

As of December 31, 2023 , after total principal prepayments of $ 200 and regularly scheduled principal payments of $ 109 , the aggregate outstanding principal amount of the Term Loan Facility was $ 4,953 and the weighted average interest rate was 7.7 % .

As of December 31, 2023 , there were no borrowings under the Revolving Facility.

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

actions permitted to be taken by a secured creditor.

As of December 31, 2022, the Company was in compliance with all covenants under the New Credit Agreement.

The proceeds of the New Term Loan Facility were used on the Effective Date, among other things, to fund a portion of the consideration payable in connection with the Atotech Acquisition and to refinance the Prior Term Loan Facility and the Prior ABL Credit Facility and certain indebtedness of Atotech.

The Company also paid certain customary fees and expenses of JPMorgan Chase Bank, N.A., Barclays Bank PLC, BofA Securities Inc., Citigroup Global Markets Inc., HSBC Securities (USA) Inc.

and Mizuho Bank, Ltd.

in their respective capacities as lead arrangers and bookrunners in connection with the New Credit Facilities.

On the Effective Date, in connection with the entry into the New Credit Agreement described above, the Company terminated and prepaid the prior term loan credit facility under that certain Term Loan Credit Agreement, dated as of April 29, 2016, by and among the Company, Barclays Bank PLC and the other financial institutions from time to time party thereto (as amended, the “Prior Term Loan Credit Agreement”) and the term loan credit facility thereunder, the “Prior Term Loan Facility”) and terminated the prior revolving credit facility under that certain ABL Credit Agreement, dated as of February 1, 2019, by and among the Company, Barclays Bank PLC and the other financial institutions from time to time party thereto (as amended, the “Prior ABL Credit Agreement”

and the revolving credit facility thereunder, the “

Prior ABL Credit Facility”).

At the time of termination, there were approximately $ 820 in borrowings outstanding under the Prior Term Loan Facility that were prepaid and no borrowings outstanding under the Prior ABL Credit Facility.

The Company has determined the termination to be a full extinguishment of debt and has written off to expense the immaterial remaining balance of deferred finance costs and debt issuance costs related to the Prior Term Loan Facility and the Prior ABL Credit Facility.

As of December 31, 2022 , the outstanding principal amount of the New Term Loan Facility was $ 5,122 and the weighted average interest rate was 6.8 %.

As of December 31, 2022 , there were no borrowings under the New Revolving Facility.

Lines of Credit and Borrowing Arrangements

Certain of the Company’s Japanese subsidiaries have lines of credit and a financing facility with various financial institutions, many of which generally expire and are renewed at three-month intervals with the remaining having no expiration date.

The lines of credit and financing facility provided for aggregate borrowings as of December 31, 2023 and December 31, 2022 of up to an equivalent of $ 14 and $ 27 , respectively.

There were no borrowings outstanding under these arrangements at December 31, 2023 or December 31, 2022.

Contractual maturities of the Company’s debt obligations as of December 31, 2022 are as follows:

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

Contractual maturities of the Company’s debt obligations as of December 31, 2023 are as follows:

(16) Other Current Liabilities

Other current liabilities consisted of the following:

December 31, 2023

December 31, 2022

Accrued compensation and other employee-related obligations

Deferred revenue and customer advances

Income taxes payable

Lease liabilities

Total other current liabilities

(17) Income Taxes

A reconciliation of the Company’s effective tax rate to the U.S.

federal statutory rate is as follows:

Years Ended December 31,

federal statutory tax rate

federal income tax statutory rate

Goodwill impairment

Federal tax credits

State income taxes, net of credits and net of federal benefit

State income taxes, net of federal benefit

Effect of foreign operations taxed at various rates

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Withholding taxes on foreign dividends, net of foreign tax credits

The components of income before income taxes and the related provision (benefit) for income taxes consist of the following:

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

The components of (loss) income before income taxes and the related (benefit) provision for income taxes consist of the following:

Years Ended December 31,

Income before income taxes:

(Loss) income before income taxes:

United States

3 unchanged sentences

United States

State and Foreign

Provision for income taxes

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

(Benefit) provision for income taxes

The significant components of the deferred tax assets and deferred tax liabilities are as follows:

1 unchanged sentence

Interest, loss, and credit carryforwards

Capitalized research and development

Inventory and warranty reserves

Lease liability

Accrued expenses and other reserves

Stock-based compensation

Executive supplemental retirement benefits

Capitalized research expenditures

Lease liability

Total deferred tax assets

Valuation allowance

Net deferred tax assets

Deferred tax liabilities:

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Total deferred tax liabilities

Valuation allowance

Net deferred tax liabilities

6 unchanged sentences

The Company has $ 688 of foreign interest carryforwards that can be carried forward indefinitely.

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

Although the Company believes that its tax positions are consistent with applicable U.S.

3 unchanged sentences

Balance at beginning of year

Increases for tax positions taken during prior years

Increases (decreases) for tax positions taken during prior years

Increases for tax positions taken during the current year

Reductions related to expiration of statutes of limitations and audit

Reductions related to expiration of statutes of limitations and

audit settlements

Balance at end of year

The net increase in gross unrecognized tax benefits during 2022, particularly the increases for tax positions taken during prior years, was primarily attributable to the addition of historical gross unrecognized tax benefits of Atotech as a result of the Atotech Acquisition.

The net increase in gross unrecognized tax benefits in 2023 was primarily due to the addition of unrecognized U.S.

federal tax credits.

The Company accrues interest and, if applicable, penalties for any uncertain tax positions.

Interest and penalties are classified as a component of income tax expense.

Interest and penalties are classified as a component of income tax (benefit) expense.

As of December 31, 2023, 2022 and 2021, the Company accrued interest on unrecognized tax benefits of approximately $ 7 , $ 6 and $ 1 , respectively.

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

Over the next 12 months, it is reasonably possible that the Company may recognize approximately $ 12 of previously net unrecognized tax benefits, excluding interest and penalties, related to various U.S.

3 unchanged sentences

federal statute of limitations remains open for tax years 2020 through the present.

The statute of limitations for the Company’s tax filings in other jurisdictions varies between fiscal years 2015 through present.

The statute of limitations for the Company’s tax filings in other jurisdictions varies between fiscal years 2017 through present.

The Company also has certain U.S.

federal and state as well as foreign tax loss and credit carryforwards that are open to examination.

federal and state as well as foreign tax loss and credit carryforwards that are open for examination for tax years 2003 to the present.

In addition, the 2017 U.S.

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The future benefit to be derived from its deferred tax assets is dependent upon its ability to generate sufficient future taxable income to realize the assets.

During 2022 , the Company increased its valuation allowance by $ 155 , primarily related to the valuation allowance recorded in connection with foreign interest and net operating loss carryforwards associated with the Atotech Acquisition.

During 2021 , the Company decreased its valuation allowance by $ 4 .

This decrease was primarily related to the release of the valuation allowance on its Austrian entities.

During 2020 , the Company increased its valuation allowance by $ 3 .

This increase was primarily related to certain foreign net operating loss carry-forward amounts.

Deferred taxes have been recorded related to historical outside basis differences, primarily unremitted earnings, of certain of the Company’s foreign subsidiaries.

During 2022 , the Company recorded a tax provision of $ 33 related to such taxes for prior periods.

The Company has a tax incentive in Singapore with benefits of approximately $ 0.05 ($ 0.01 per share) in 2022 and $ 0.4 ($ 0.01 per share) in 2021.

The tax incentive in Singapore expires in June 2026.

During 2023, the Company increased its valuation allowance by $ 9 , primarily related to the valuation allowance recorded in connection with foreign interest and net operating loss carryforwards.

During 2022, the Company increased its valuation allowance by $ 155 , primarily related to the valuation allowance recorded for foreign interest and net operating loss carryforwards associated with the Atotech Acquisition.

Deferred taxes have been recorded related to historical outside basis differences, primarily unremitted earnings, of certain of the Company’s foreign subsidiaries.

During 2023, the Company recorded a tax benefit of $ 3 related to such taxes for prior periods.

(18) Stock-Based Compensation

Employee Stock Purchase Plans

The 2014 ESPP was adopted by the Board of Directors on February 10, 2014 and approved by the Company’s stockholders on May 5, 2014.

The 2014 ESPP authorizes the issuance of up to an aggregate of 2.5 shares of common stock to participating employees.

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Under the 2014 ESPP, eligible employees can purchase shares of common stock through payroll deductions up to 10 % of their compensation, up to a defined maximum annual amount.

The price at which an employee’s purchase option is exercised for each offering period is the lower of (1) 90 % of the closing price on the common stock on the Nasdaq Global Select Market on the day that each offering commences, or (2) 90 % of the closing price on the day that the offering terminates.

The Company issued 0.1 shares of common stock during each of 2022, 2021 and 2020 to employees who participated in the 2014 ESPP at exercise prices of $ 111.15 and $ 75.47 per share in 2022 , $ 126.00 and $ 136.94 per share in 2021 , and $ 95.07 and $ 93.77 per share in 2020.

The price at which an employee’s purchase option is exercised for each offering period is the lower of (1) 90 % of the closing price of the common stock on the Nasdaq Global Select Market on the day that the offering commences, or (2) 90 % of the closing price of the common stock on the day that the offering terminates.

The Company issued 0.1 shares of common stock during each of 2023, 2022 and 2021 to employees who participated in the 2014 ESPP at exercise

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

prices of $ 74.95 and $ 74.30 per share in 2023, $ 111.15 and $ 75.47 per share in 2022, and $ 126.00 and $ 136.94 per share in 2021.

As of December 31, 2023 there were 1.4 shares reserved for future issuance under the 2014 ESPP.

Equity Incentive Plans

Prior to May 10, 2022, the Company granted RSUs to employees and directors under the 2014 Stock Incentive Plan (the “2014 Plan”).

Following shareholder approval of the 2022 Stock Incentive Plan (the “2022 Plan,”

and together with the 2014 Plan, the “Plans”) on May 10, 2022, the Company discontinued granting RSUs to employees and directors under the 2014 Plan and began granting them under the 2022 Plan.

Prior to May 10, 2022, the Company granted RSUs to employees and directors under the 2014 Stock Incentive Plan (the “2014 Plan”).

Following shareholder approval of the 2022 Stock Incentive Plan (the “2022 Plan,” and together with the 2014 Plan, the “Plans”) on May 10, 2022, the Company discontinued granting RSUs to employees and directors under the 2014 Plan and began granting them under the 2022 Plan.

The Plans are administered by the Compensation Committee of the Company's Board of Directors.

1 unchanged sentence

Up to 6.6 shares of common stock (subject to adjustment in the event of stock splits and other similar events) may be issued pursuant to awards granted under the 2022 Plan.

The Company may grant options, RSUs, restricted stock, stock appreciation rights (“SARs”) and other stock-based awards to employees, officers, directors, consultants and advisors under the 2022 Plan.

Any full-value awards granted under the 2022 Plan will be counted against the shares reserved for issuance under the 2022 Plan as 1.91 shares for each share of common stock subject to such award.

Any award granted under the 2022 Plan that is not a full-value award (including, without limitation, any option or SAR) will be

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

counted against the shares reserved for issuance under the plan on a one-for-one basis of common stock subject to such award.

“Full-value award”

means any restricted stock, RSUs, or other stock-based award with a per share price or per unit purchase price lower than 100 % of fair market value on the date of grant.

Any award granted under the 2022 Plan that is not a full-value award (including, without limitation, any option or SAR) will be counted against the shares reserved for issuance under the plan on a one-for-one basis of common stock subject to such award.

“Full-value award” means any restricted stock, RSUs, or other stock-based award with a per share price or per unit purchase price lower than 100 % of fair market value on the date of grant.

To the extent an award that is not a full-value award is returned to the 2022 Plan, the share reserve under the 2022 Plan will be credited with one share.

2 unchanged sentences

Time-based RSUs granted to employees generally vest 33 % per year beginning on the first anniversary of the date of grant.

Performance-based RSUs granted to the Company’s executive officers in 2022, 2021 and 2020 were based on the Company’s achievement of adjusted EBITDA for each respective year, defined as GAAP operating income excluding any charges or income not related to the operating performance of the Company plus depreciation and stock compensation expense, set at varying revenue levels.

The final number of performance-based RSUs that vest varies based on the level of performance achieved from 0 % to 150 % of the underlying target shares granted in 2020 and from 0 % to 200 % of the underlying target shares granted in 2021 and 2022.

Performance-based RSUs granted to the Company’s executive officers in 2023, 2022 and 2021 were based on the Company’s achievement of adjusted EBITDA for each respective year, defined as GAAP operating income excluding any charges or income not related to the operating performance of the Company plus depreciation and stock compensation expense, set at varying revenue levels.

The final number of performance-based RSUs that vest varies based on the level of performance achieved from 0 % to 200 % of the underlying target shares granted in 2023, 2022 and 2021 .

The performance-based RSUs earned generally vest 33 % per year beginning on the first anniversary of the date of grant.

RSUs granted to certain employees who meet certain retirement eligibility requirements will vest in full upon each such employee’s retirement and are expensed immediately.

RSUs granted to directors generally vest at the earliest of (1) one day prior to the next annual meeting, (2) 13 months from date of grant, or (3) the effective date of a change in control of the Company.

In connection with the Atotech Acquisition, all Atotech time-based RSUs and performance-based RSU awards outstanding immediately prior to the acquisition were cancelled and replaced with the Company's time-based RSUs under the 2022 Plan in accordance with the Implementation Agreement.

In connection with the Atotech Acquisition, all Atotech time-based RSUs and performance-based RSU awards outstanding immediately prior to the completion of the Atotech Acquisition were cancelled and replaced with the Company's time-based RSUs under the 2022 Plan in accordance with the Implementation Agreement.

These RSUs are subject to the terms and conditions of the 2022 Plan and the related RSU agreements.

2 unchanged sentences

Weighted Average Grant Date Fair Value

RSUs —

beginning of period

RSUs issued in Atotech Acquisition

RSUs —

end of period

Year ended December 31, 2021

Weighted Average Grant Date Fair Value

RSUs —

beginning of period

RSUs —

end of period

The Company had no outstanding SARs as of December 31, 2022 and an immaterial amount of SARs as of December 31, 2021.

RSUs — beginning of period

RSUs — end of period

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

Year ended December 31, 2022

Weighted Average Grant Date Fair Value

RSUs — beginning of period

RSUs issued in Atotech Acquisition

RSUs — end of period

Stock-Based Compensation Expense

6 unchanged sentences

Windfall tax effect on stock-based compensation

Net effect on net income

Effect on net earnings per share:

The pre-tax effect within the consolidated statements of operations and comprehensive income of recording stock-based compensation was as follows:

Net effect on net (loss) income

Effect on net (loss) earnings per share:

The pre-tax effect within the consolidated statements of operations and comprehensive (loss) income of recording stock-based compensation was as follows:

Years Ended December 31,

2 unchanged sentences

Selling, general and administrative expense

Acquisition and integration related expense

Total pre-tax stock-based compensation expense

Valuation Assumptions

The Company determines the fair value of RSUs based on the closing market price of the Company’s common stock on the date of the award and estimates the fair value of employee stock purchase plan rights using the Black-Scholes valuation model.

Such values are recognized as expense on a straight-line basis for time-based awards and using the accelerated graded vesting method for performance-based awards, both over the requisite service periods.

7 unchanged sentences

Expected annual dividends per share

Expected volatilities are based on a combination of implied and historical volatilities of the Company’s common stock;

the expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns;

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

Expected volatilities are based on a combination of implied and historical volatilities of the Company’s common stock;

and the risk-free interest rate is based on the U.S.

1 unchanged sentence

The total fair value of RSUs vested during 2023, 2022 and 2021 was approximately $ 40 , $ 40 and $ 57 , respectively.

Am immaterial value of SARs was included in 2022 and 2021.

As of December 31, 2023, the unrecognized compensation cost related to RSUs was approximately $ 46 and will be recognized over an estimated weighted average amortization period of 1 year.

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

17) Stockholders’

(19) Stockholders’ Equity

Share Repurchase Program

On July 25, 2011, the Company’s Board of Directors approved a share repurchase program for the repurchase of up to an aggregate of $ 200 of its outstanding common stock from time to time in open market purchases, privately negotiated transactions or through other appropriate means.

The timing and quantity of any shares repurchased will depend upon a variety of factors, including business conditions, stock market conditions and business development activities, including, but not limited to, merger and acquisition opportunities.

3 unchanged sentences

Cash Dividends

Holders of the Company’s common stock are entitled to receive dividends when they are declared by the Company’s Board of Directors.

The Company’s Board of Directors declared a cash dividend of $ 0.22 per share during each quarter of 2022 , which totaled $ 52 or $ 0.88 per share.

The Company’s Board of Directors declared a cash dividend of $ 0.20 per share during the first quarter and $ 0.22 per share during the second, third and fourth quarters of 2021 , which totaled $ 47 or $ 0.86 per share.

On February 6, 2023 , the Company’s Board of Directors declared a quarterly cash dividend of $ 0.22 per share that was paid on March 10, 2023 to Stockholders of record as of February 27, 2023 .

Future dividend declarations, if any, as well as the record and payment dates for such dividends, are subject to the final determination of the Company’s Board of Directors.

Holders of the Company’s common stock are entitled to receive dividends when they are declared by the Company’s Board of Directors.

The Company’s Board of Directors declared a cash dividend of $ 0.22 per share during each quarter of 2023, which totaled $ 59 or $ 0.88 per share.

The Company’s Board of Directors declared a cash dividend of $ 0.22 per share during each quarter of 2022, which totaled $ 52 or $ 0.88 per share.

On February 5, 2024 , the Company’s Board of Directors declared a quarterly cash dividend of $ 0.22 per share to be paid on March 8, 2024 to Stockholders of record as of February 26, 2024 .

Future dividend declarations, if any, as well as the record and payment dates for such dividends, are subject to the final determination of the Company’s Board of Directors.

(20) Employee Benefit Plans

1 unchanged sentence

employees meeting certain requirements, in which eligible employees may contribute between 1 % and 50 % of their annual compensation to this plan, and, with respect to employees who are age 50 and older, certain specified additional amounts, limited by an annual maximum amount determined by the Internal Revenue Service.

The Company, at its discretion, makes certain matching contributions to this plan based on participating employees’

annual contribution to this plan and their total compensation.

The Company’s contributions were $ 10 , $ 8 and $ 7 for 2022, 2021 and 2020, respectively.

The Company, at its discretion, makes certain matching contributions to this plan based on participating employees’ annual contribution to this plan and their total compensation.

The Company’s contributions were $ 9 , $ 10 and $ 8 for 2023, 2022 and 2021, respectively.

The Company also has a number of defined contribution plans at some of its foreign locations.

The Company’s contributions were immaterial for 2022, 2021 and 2020.

The Company maintains a bonus plan which provides cash awards to certain employees, at the discretion of the Compensation Committee of the Company’s Board of Directors, based upon the Company’s operating results.

In addition, the Company’s foreign locations also have various bonus plans based upon local operating results and employee performance.

The Company’s contributions were immaterial for 2023, 2022 and 2021.

In addition, certain of the Company’s foreign locations also have various bonus plans based upon local operating results and employee performance.

The total bonus expense was $ 63 , $ 48 and $ 76 for 2023, 2022 and 2021, respectively.

1 unchanged sentence

The Company has a number of defined benefit pension plans at many of its foreign location, which cover most of its full-time employees at these respective locations.

In addition, the Company has certain pension assets and liabilities relating to its former employees in the United Kingdom.

One of the Company's German pension plans is unfunded, as permitted under the plan and applicable laws.

As a result of the Atotech Acquisition, the Company assumed all assets and liabilities of Atotech's defined benefit pension plans.

For financial reporting purposes, the Company obtained actuarial reports supporting the calculation of net periodic pension costs that used a number of actuarial assumptions, including a discount rate for plan obligations, an assumed rate of return on pension plan assets and an assumed rate of compensation increase for employees covered by the various plans.

The Company reviewed these actuarial assumptions and concluded they were reasonable based upon management’s judgment, considering known trends and uncertainties.

Actual results that differ from these

In addition, the Company has certain pension assets and liabilities

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

assumptions would impact future expense recognition and the cash funding requirements of the Company’s pension plans.

relating to its former employees in the United Kingdom.

One of the Company’s German pension plans is unfunded, as permitted under the plan and applicable laws.

As a result of the Atotech Acquisition, the Company assumed all assets and liabilities of Atotech’s defined benefit pension plans.

The Company reviewed these actuarial assumptions and concluded they were reasonable based upon management’s judgment, considering known trends and uncertainties.

Actual results that differ from these assumptions would impact future expense recognition and the cash funding requirements of the Company’s pension plans.

The net periodic benefit costs for the defined benefit plans included the following components:

Years Ended December 31,

Year Ended December 31,

Interest cost on projected benefit obligations

Expected return on plan assets

Amortization of actuarial net loss

The changes in projected benefit obligations and plan assets, as well as the ending balance sheet amounts for the Company’s defined benefit plans, were as follows:

Years Ended December 31,

The changes in projected benefit obligations and plan assets, as well as the ending balance sheet amounts for the Company’s defined benefit plans, were as follows:

Year Ended December 31,

Change in projected benefit obligations:

2 unchanged sentences

Interest cost

Actuarial (gain) loss

Actuarial loss (gain)

Benefits paid

5 unchanged sentences

Company contributions

Loss on plan assets

Gain (loss) on plan assets

Benefits paid

2 unchanged sentences

Net underfunded status

As of December 31, 2022, the estimated benefit payments for the Company’s defined benefit plans for the next 10 years were as follows:

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

As of December 31, 2023, the estimated benefit payments for the Company’s defined benefit plans for the next 10 years were as follows:

Estimated benefit

4 unchanged sentences

Expected long-term rate of return on assets

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

In determining the expected long-term rate of return on plan assets, the Company considers the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes, and economic and other indicators of future performance.

4 unchanged sentences

Equity securities

In general, the Company’s asset management objectives include maintaining an adequate level of diversification to reduce interest rate and market risk, while providing adequate liquidity to meet immediate and future benefit payment requirements.

The Company’s Israeli plans account for the deferred vested benefits using the shut-down method of accounting, which resulted in assets of $ 19 and vested benefit obligations of $ 22 as of December 31, 2022 and assets of $ 20 and vested benefit obligations of $ 23 as of December 31, 2021.

The Company’s Israeli plans account for the deferred vested benefits using the shut-down method of accounting, which resulted in assets of $ 19 and vested benefit obligations of $ 22 as of December 31, 2023 and assets of $ 19 and vested benefit obligations of $ 22 as of December 31, 2022.

Under the shut-down method, the liability is calculated as if it were payable as of the balance sheet date, on an undiscounted basis.

3 unchanged sentences

These group insurance contracts have a guaranteed minimum rate of return ranging from 2.0 % to 4.25 %, depending on the contract.

Because these assets were not separate legal assets of the pension plan, they were not included in the Company’s plan assets shown above.

However, the Company has designated such assets to pay pension benefits.

Such assets are included in other assets in the accompanying consolidated balance sheet.

19) Net Income Per Share

The following is a reconciliation of basic to diluted net income per share:

Years Ended December 31,

Shares used in net income per common share –

Effect of dilutive securities

Shares used in net income per common share –

Net income per common share:

Basic earnings per share (“EPS”) is computed by dividing income available to holders of the Company’s common stock by the weighted-average number of common shares outstanding during the period.

The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding (using the treasury stock method) if securities containing potentially dilutive common shares (RSUs) had been converted to such common shares, and if such assumed conversion is dilutive.

In 2022, 2021 and 2020 , the potential dilutive effect of the weighted average shares of RSUs that were excluded from the computation of diluted weighted-average shares outstanding, as the shares would have had an anti-dilutive effect on EPS, was immaterial.

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

(21) Net (Loss) Income Per Share

The following is a reconciliation of basic to diluted net (loss) income per share:

Years Ended December 31,

Net (loss) income

Shares used in net (loss) income per common share – basic

Effect of dilutive securities

Shares used in net (loss) income per common share – diluted

Net (loss) income per common share:

Basic earnings per share (“EPS”) is computed by dividing income available to holders of the Company’s common stock by the weighted-average number of common shares outstanding during the period.

The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding (using the treasury stock method) if securities containing potentially dilutive common shares had been converted to such common shares, and if such conversion is dilutive.

In periods in which a net loss is recognized, the impact of RSUs is not included as they are antidilutive.

In 2022 and 2021 , the Company had an immaterial quantity of RSUs that were antidilutive and were excluded from the computation of diluted weighted-average shares.

(22) Business Segment, Geographic Area, Product Information and Significant Customer Information

Reportable Segments and Products

The Company’s Chief Operating Decision Maker (“CODM”), which is the Company’s Chief Executive Officer, utilizes financial information to make decisions about allocating resources and assessing performance for the entire Company, which is used in the decision-making process to assess performance.

The Company has a diverse base of customers across its primary served markets, which include semiconductor, electronics and packaging, and specialty industrial.

The Company’s CODM, which is the Company’s Chief Executive Officer, utilizes financial information to make decisions about allocating resources and assessing performance for the entire Company, which is used in the decision-making process to assess performance.

The Company has a diverse base of customers across its three end markets, semiconductor, electronics and packaging, and specialty industrial.

The CODM utilizes total gross profit for the purposes of making decisions about allocating resources and assessing performance.

The Company has three reporting segments, VSD, PSD and MSD as described below.

VSD delivers foundational technology solutions to leading edge semiconductor manufacturing, electronics and packaging and specialty industrial applications.

VSD products are derived from the Company’s core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, electronic control technology, reactive gas generation and delivery, power generation and delivery, and vacuum technology.

PSD provides a full range of solutions including lasers, beam measurement and profiling, precision motion control, vibration isolation systems, photonics instruments, temperature sensing, opto-mechanical components, optical elements, systems for flexible PCB laser processing, high-speed multilayer ceramic capacitor testing, laser-based systems for high density interconnect PCB and package manufacturing.

PSD provides a full range of solutions including lasers, beam measurement and profiling, precision motion control, vibration isolation systems, photonics instruments, temperature sensing, opto-mechanical components, optical elements, systems for flexible PCB laser processing, laser-based systems for high-density interconnect PCB and package manufacturing.

MSD develops leading process and manufacturing technologies for advanced surface modification, electroless and electrolytic plating, and surface finishing.

Atotech is a brand within MSD.

Applying a comprehensive systems-and-solutions approach, MSD’s portfolio includes chemistry, equipment, software, and services for innovative and high-technology applications in a wide variety of end-markets.

2 unchanged sentences

The Company groups its product offerings by its reportable segments, VSD, PSD, and MSD.

The Company also provides services relating to the maintenance and repair of its products, installation services and training to all three of its reportable segments.

The following table sets forth net revenues by reportable segment:

Years Ended December 31,

Vacuum Solutions Division

Photonics Solutions Division

Materials Solutions Division

For each reportable segment, the Company also provides services relating to the maintenance and repair of its products, installation services and training.

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

The following table sets forth net revenues by reportable segment:

Years Ended December 31,

The following table sets forth a reconciliation of segment gross profit to consolidated net income:

1 unchanged sentence

Gross profit by reportable segment:

Vacuum Solutions Division

Photonics Solutions Division

Materials Solutions Division

Total gross profit by reportable segment

3 unchanged sentences

Acquisition and integration costs

Restructuring and other

Restructuring

Fees and expenses related to repricing of Term Loan Facility

Amortization of intangible assets

Goodwill and intangible asset impairment

Gain on sale of long-lived assets

Income from operations

(Loss) income from operations

Interest income

Interest expense

Loss on extinguishment of debt

Other expense, net

Income before income taxes

Provision for income taxes

(Loss) income before income taxes

(Benefit) provision for income taxes

Net (loss) income

The following table set forth capital expenditures by reportable segment:

Years Ended December 31,

Vacuum Solutions Division

Photonics Solutions Division

Materials Solutions Division

Total capital expenditures

1 unchanged sentence

Years Ended December 31,

Vacuum Solutions Division

Photonics Solutions Division

Materials Solutions Division

Total depreciation and amortization

Total income tax expense is not presented by reportable segment because the necessary information is not available or used by the CODM.

The following table sets forth segment assets by reportable segment:

Accounts Receivable

December 31, 2022

Vacuum Solutions Division

Photonics Solutions Division

Materials Solutions Division

Corporate, Eliminations & Other

Total segment assets

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

Accounts Receivable

The following table sets forth segment assets by reportable segment:

receivable, net

December 31, 2023

Vacuum Solutions Division

Photonics Solutions Division

Materials Solutions Division

Corporate, Eliminations & Other

Total segment assets

receivable, net

December 31, 2022

Total segment assets

The Company adjusted the accounts receivable, net balances as of December 31, 2022 to correct for immaterial errors in the segments.

The following is a reconciliation of segment assets to consolidated total assets:

8 unchanged sentences

Geographic Area

Information about the Company’s operations by geographic region is presented in the tables below.

Net revenues from unaffiliated customers are based on the location in which the sale originated.

3 unchanged sentences

United States

Long-lived assets include property, plant and equipment, net, right-of-use assets, and certain other assets, and exclude goodwill, intangible assets and long-term tax-related accounts.

Long-lived assets:

United States

Goodwill associated with each of the Company’s reportable segments is as follows:

Vacuum Solutions Division

Photonics Solutions Division

Materials Solutions Division

Total goodwill

The Company adjusted the net revenues by geographic area balances as of December 31, 2022 to correct for immaterial errors by location.

MKS INSTRUMENTS, INC.

1 unchanged sentence

(in millions, except per share data)

Long-lived assets include property, plant and equipment, net, right-of-use assets, and certain other assets, and exclude goodwill, intangible assets and long-term tax-related accounts.

Long-lived assets:

United States

Goodwill associated with each of the Company’s reportable segments is as follows:

Reportable segment:

Gross goodwill, at December 31, 2022

Foreign currency translation and measurement period adjustments

Gross goodwill, at December 31, 2023

Accumulated goodwill impairment, at December 31, 2022

Impairment charge

Accumulated goodwill impairment, at December 31, 2023

Goodwill, net of accumulated impairment, foreign currency translation and measurement period adjustments, at December 31, 2023

The Company sells products and services to thousands of customers worldwide, in a wide range of end markets.

Revenues from its top ten customers accounted for 30 % , 42 % and 46 % of net revenues for 2023, 2022, and 2021, respectively.

The Company had two customers with net revenues greater than or equal to 10% of total net revenues for the years ended December 31, 2022, 2021 and 2020, as shown below.

Years Ended December 31,

Lam Research Corporation

Applied Materials, Inc.

21) Restructuring and Other

For the year ended December 31, 2023 , no customer represented 10% or more of the Company’s net revenues.

For the year ended December 31, 2022 , the Company had one customer that represented 14% and one customer that represented 10% of net revenues.

For the year ended December 31, 2021 , the Company had one customer that represented 15% and one customer that represented 11% of net revenues.

(23) Restructuring

Restructuring costs were $ 10 in 2022 , primarily related to severance costs due to a global cost-saving initiative and the closure of two facilities in Europe, as well as executive payments related to the Atotech Acquisition.

Restructuring costs totaled $ 7 in 2021 , primarily related to severance costs due to a global cost-saving initiative, costs related to the pending closure of two facilities in Europe and the movement of the manufacturing of products to low-cost regions.

The activity related to the Company’s restructuring accrual is shown below:

Restructuring costs were $ 20 in 2023, related to severance costs due to global cost-saving initiatives.

Restructuring costs were $ 10 in 2022 , primarily related to severance costs due to a global cost-saving initiative, the closure of two facilities in Europe, the movement of certain products to low-cost regions as well as executive payments related to the Atotech Acquisition.

The activity related to the Company’s restructuring accrual is shown below:

Balance at January 1

2 unchanged sentences

Balance at December 31

During 2021 , the Company recorded charges of $ 3 related primarily to duplicate facility costs.

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

(24) Commitments and Contingencies .

2 unchanged sentences

The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business.

In the opinion of management, the ultimate disposition of these matters, will not have a material adverse effect on the Company’s results of operations, financial condition or cash flows.

(25) Subsequent Events

On February 3, 2023, the Company identified that it had become subject to a ransomware event and took immediate action to activate its incident response and business continuity protocols to contain the incident.

The Company engaged appropriate incident response professionals and notified law enforcement authorities.

The Company then initiated the recovery phase and has since made substantial progress by completing restoration of its enterprise resource planning systems and reopening certain of its affected manufacturing and service operations.

Based on its investigation, the Company concluded ransomware actors encrypted certain of its systems by deploying malware.

This incident required the Company to temporarily suspend operations at certain of its facilities and has had a material impact in the first quarter of 2023 on the Company’s ability to process orders, ship products and provide service to its VSD and PSD customers.

The incident did not impact the operations of MSD.

The Company has incurred costs in the first quarter of 2023 and expects to continue to incur costs, which may be significant, in connection with this incident.

In the first quarter of 2023, these costs have been primarily comprised of

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

various third-party consulting services, including forensic experts, restoration experts, legal counsel, and other information technology and accounting professional expenses, enhancements to its cybersecurity measures, costs to restore its systems and access its data, and employee-related expenses, including with respect to increased overtime.

The Company expects to incur these and other costs related to this incident in the future.

On January 22, 2024 (the “Second Amendment Effective Date”), the Company entered into the Second Amendment to Credit Agreement (the “Second Amendment”).

Pursuant to the Second Amendment, the Company (i) borrowed additional USD tranche B loans (the “Incremental USD Tranche B Loans”) in an aggregate principal amount of $ 490 , (ii) borrowed additional Euro Tranche B loans (the “Incremental Euro Tranche B Loans” and together with the Incremental USD Tranche B Loans, the “Incremental Tranche B Loans”) in an aggregate principal amount of € 250 and (iii) used a portion of the proceeds of the Incremental Tranche B Loans to prepay the Company’s USD Tranche A in full in an aggregate principal amount of $ 744 .

Remaining proceeds of the Incremental Tranche B Loans were used to pay fees and expenses in connection with the Second Amendment and will be used for working capital and general corporate purposes.

The Incremental USD Tranche B Loans and the Incremental Euro Tranche B Loans have identical terms to the Company’s existing USD Tranche B and Euro Tranche B loans (collectively, together with the Incremental Tranche B Loans, the “Tranche B Loans”), respectively, under the Credit Agreement.

Additionally, pursuant to the Second Amendment, the 1.00 % prepayment premium applicable to any Tranche B Loans prepaid in connection with certain repricing transactions was extended for a period of six months following the Second Amendment Effective Date.

The Incremental Tranche B Loans were issued with original issue discount of 0.25 %.

In connection with the execution of the Second Amendment, the Company paid customary fees and expenses to JPMorgan Chase Bank, N.A.

On February 5, 2024, the Company made a voluntary prepayment of $ 50 aggregate principal amount on the USD Tranche B.

On February 13, 2024, the Company entered into the Third Amendment to Credit Agreement (the “Third Amendment”).

Pursuant to the Third Amendment, the Company increased the available borrowing capacity under the Revolving Facility by $ 175 million (the “Incremental Revolving Commitments”), from $ 500 million to $ 675 million.

In connection with the execution of the Third Amendment, the Company paid customary fees and expenses to the lenders providing the Incremental Revolving Commitments and to JPMorgan Chase Bank, N.A.

Changes in and Disagreements with Acco untants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data